PAYMENTS GIANT WARNS RBA CARD SURCHARGE BAN WILL COST SHOPPERS $1.5B

Banks will force customers to pay higher interest rates and account fees on credit cards, while retailers will charge more for purchases if the Reserve Bank of Australia cuts wholesale payment costs and bans surcharges, international payments giant Mastercard has warned.

The US company, which operates a debit and credit card network alongside its main rival Visa, said retailers that charged payment surcharges, which the RBA estimated last month cost shoppers $1.2 billion a year, would pass on the amount to customers under the proposal to ban the practice.

Mastercard says customers could pay an extra $1.5 billion a year in higher prices, bank fees and interest rates.

Customers would ultimately pay $1.5 billion each year because of higher prices and credit costs, Mastercard said, or $300 million more than the central bank’s estimated cost of surcharges.

The RBA said last month it would move to eliminate debit and credit card surcharges and cut wholesale payment costs for merchants, in a proposal that went beyond a government plan to ban surcharges only on debit card transactions.

The central bank’s plan includes halving the fee a bank receives from retailers when a payment is made using a credit card issued by the lender, known as the interchange fee.

The RBA estimates this change would reduce bank revenue by about $900 million a year.

But Mastercard said banks would try to recover this amount by raising other fees and charges.

In Britain, where interchange fee caps have been reduced, banks responded by increasing credit card interest rates.

Annual credit card rates average 36 per cent in the UK, according to Finder, compared with about 20 per cent in Australia.

There will be similar interest rate increases and higher annual fees for credit and debit cards here, Mastercard will tell the RBA in a submission this month.

“Banks will increase the annual fee on credit cards, introduce account keeping fees on debit cards, credit card interest rates will increase, and there will be a reduction in the value of rewards – and we think banks will do all of these,” said Richard Wormald, Mastercard’s Australasia division president.

“We also think small businesses will put up prices by the amount of the costs they are going to wear.

“So, the net outcome will be no savings for consumers, who will be paying the surcharge today and the [higher] price tomorrow [that is] just built into the cost of goods.”

The major banks declined to comment before submissions are sent to the RBA by August 26.

However, a banker with knowledge of payments systems who was not authorised to speak publicly said lenders would probably respond with higher credit costs and added that the RBA proposals would make it harder for some customers to obtain credit cards.|

“Fewer people will have access to credit, especially in the mass market and small businesses, and for this population, access to credit when they need it is incredibly helpful,” the banker said.

“Credit card economics are already quite challenged. And now you are taking a tough market and cutting the revenue in half.”

Mastercard said the RBA’s plans would also increase the cost of payments for supermarket giants Coles and Woolworths and other large retailers, which pay lower rates under rules that recognise the large volume they send through the card networks.

The payments company said large retailers such as supermarkets would be forced to lift prices by an aggregate $260 million each year to offset the higher fees.

Analysts agreed that the major banks would likely respond to the RBA move on interchange fees by increasing fees and interest rates.

“We anticipate banks will likely respond … by raising cardholder fees, reducing rewards on credit cards, and potentially increasing interest rates, depending on competition,” said UBS analyst John Storey.

Retailers said most businesses that charged card fees would pass on payment costs and raise prices immediately if the practice is banned.

“Ultimately, all cost increases are passed on to the consumer.

Whether that be increases to the cost of energy, insurance, bank interest, wages, or card surcharges, the cost will be passed on,” said Stephen Ferguson, the national chief executive of the Australian Hotels Association.

Among businesses that do not surcharge, few expect their banks or payment service providers to pass through lower costs, as the RBA hopes they will.

“If the rising costs of historical merchant fees are anything to go by, the last thing we expect is for the banks to pass on any cost reductions that they might receive through this reform – they are likely to come up with a new name for a new charge,” said Theo Foukkare, the chief executive of the Australian Association of Convenience Stores.

Other business groups said the RBA had underestimated the number of small businesses charging more for card payments, which the central bank put at 10 per cent.

A recent survey by the Independent Payments Forum put the number at 44 per cent.

Wes Lambert, the chief executive of the Australian Restaurant and Cafe Association, said 81 per cent of his members surcharged and an “overwhelming majority” confirmed they would pass on merchant fees through higher prices.

“There is no margin to spare,” Lambert said.

“There won’t be any savings, only added expenses and more restaurants and cafes shutting their doors in 2026 and 2027.

“And those that don’t pass on merchant fees are not holding their breath that fees will go down.

In fact, many are looking to the US, which has banned surcharges for some time but has much higher merchant fees. With less transparency, most believe costs will rise.”

Australian Lottery and Newsagents Association chief executive Ben Kearney said newsagents could not absorb higher payment costs into lottery ticket prices, which are set by state regulators, or by lifting magazine, newspaper or greeting card prices, which are set by suppliers.

“Our members have no faith that payment processors will pass through these supposed savings,” he said. “Wholesale payment costs have been rising. Why would that pattern suddenly reverse now?”

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