Credit card surcharge gauging could hurt, experts say

Industry groups have criticised a plan by the Reserve Bank to cap surcharge fees on credit card transactions, claiming the move would unfairly target smaller companies.


The RBA has launched a review of credit card surcharging, highlighting concerns that some companies are using fees as a source of income rather than covering the cost of the transaction.


Credit card schemes originally banned merchants from seeking to recover costs by applying surcharges, until the RBA intervened in an attempt to improve transparency and efficiency in the credit card market.


But the RBA says merchants are now using the surcharges as a source of income rather than a way to recover funds, identifying big merchants as the main offenders.


There is a particularly high rate of surcharging for online purchases, the RBA claims, where fees are on average double those of face-to-face transactions.


Peter Strong, executive director of the Council of Small Business of Australia, says while he can understand the logic behind the RBA’s plan, it shows a lack of understanding of the small business sector.


“If smaller retailers charge too much, they know customers won’t come to them, so a lot of them don’t even do it. It’s the ones where the consumer has no choice, such as Qantas – they’re the ones the RBA should hit,” Strong says.


Strong says small businesses should be exempt from the scheme, suggesting a revenue cut-off of $5-10 million.


If the RBA goes ahead with its plan, all merchants will be restricted on how much they can surcharge.


Such a move would come as a major blow to companies in the entertainment, travel, hotel and telecommunications industries, all of which are service-based sectors in which surcharging is common.


“Since the 2007-08 review, there has been increased evidence of adverse surcharging practices,” the RBA said in its policy paper.


“The [Payments System] Board believes that allowing some limit to be placed on the level of surcharges could improve the effectiveness of the reforms at relatively little cost.”


Another option the RBA is considering is a system of “differential” charging, which would set out an agreed costs regime and allow merchants to pass on “different costs of acceptance for different card types by imposing card-specific surcharges”.


The RBA’s move comes amid concerns that its policy to make transaction costs more transparent is only being abused by a small number of companies with substantial market power.


It noted that that surcharging was more prevalent “among very large merchants whose turnover was greater than $530 million a year”.


A spokesperson for MasterCard agrees with the RBA’s claim, conceding surcharging is most prevalent among merchants with some form of market dominance.


The RBA says it will seek industry feedback on how the charges should be applied.


Consumer group Choice is critical of excessive credit card fees, repeatedly pointing to Qantas, which charges a flat credit card fee of $7.70 per passenger.


It has also taken aim at the Cabcharge scheme used by taxi companies, where credit card use carries a 10% fee, although Cabcharge insists this is an account service fee.


Choice spokesperson Christopher Zinn says: “We’re not against surcharges where they are fair, transparent and in line with the costs incurred. But it is where it gets beyond cost recovery.”


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