Increased Pressure from Australian SMEs on Reserve Bank Over Card Surcharges
Small and medium enterprises (SMEs) in Australia are intensifying their advocacy against the Reserve Bank of Australia’s (RBA) proposal for an all-encompassing prohibition on card surcharges. They assert that a recent landmark settlement in the United States underscores a growing trend among regulators to allow more flexibility in this area.
The U.S. settlement stems from protracted litigation involving Visa and Mastercard, concluding after two decades of legal battles. As a result, American merchants are now afforded more latitude to impose surcharges on costly premium and rewards credit cards, including the ability to refuse certain card types.
Business organizations in Australia underscore the significant disparity between this U.S. outcome and the RBA’s draft recommendations. They contend that card fees represent a considerable portion of their payment expenditures and that an outright ban on surcharges would eliminate a crucial mechanism for managing these costs.
The RBA is currently engaged in consultations addressing reforms that propose a total ban on surcharges for both debit and credit card transactions. The central bank maintains that such surcharges can be unexpectedly levied on consumers during transactions, consequently obfuscating price transparency.
Advocates for SMEs argue that the U.S. resolution exemplifies a regulatory approach that targets expensive payment options instead of penalizing merchants uniformly. They note that the settlement acknowledges the elevated interchange fees associated with premium cards, necessitating greater flexibility for merchants in their handling of these instruments.
Comparative Models: U.S. and New Zealand
Under the terms of this U.S. settlement, merchants have the autonomy to accept cards within specific categories, particularly for premium consumer cards that incur higher swipe fees. Merchants also have increased authority to apply surcharges on high-cost cards.
Industry representatives in Australia argue that this nuanced model is far more equitable than the RBA’s proposed blanket prohibition. Their stance is that users of expensive payment instruments should bear the concomitant costs, while consumers opting for lower-cost alternatives should remain exempt from surcharges.
Numerous submissions directed to the RBA have advocated for any prospective ban to be limited exclusively to low-cost debit cards. Proponents assert this approach would safeguard consumers’ access to free or low-fee payment methods while permitting merchants to recuperate costs associated with pricier credit cards.
Business advocacy groups have highlighted that such a targeted ban aligns with commitments made ahead of the last federal election. Statements from Prime Minister Anthony Albanese and Treasurer Jim Chalmers have explicitly addressed debit card surcharges rather than credit cards.
SMEs caution that an all-encompassing ban could have far-reaching economic ramifications, altering the distribution of costs between various payment methods and demographic groups.
Concerns Over the ‘Waterbed Effect’
Small business factions have coined the term “waterbed effect” to describe the potential ramifications. They contend that if they cannot delineate payment fees separately, they will inevitably increase base prices or introduce alternative charges.
“A comprehensive surcharge ban would likely lead to elevated base prices or additional service fees, resulting in a generalized cost of living increase, impacting all customers—regardless of their payment method,” noted the Australian Travel Industry Association (ATIA) in its submission to the RBA.
The Australian Hotels Association (AHA) has echoed similar sentiments regarding the shifting of payment costs.
“There are no free lunches—under the current RBA proposal, credit card users would receive benefits at no cost, while customers using cash and debit cards would bear the financial burden,” stated the AHA.
Industry representatives assert that the experiences of other jurisdictions bolster their concerns. They reference Europe’s prohibition on surcharges as an instance where costs are simply transferred into overarching retail prices, failing to alleviate the burden on consumers.
The European Court of Auditors conducted a review of the repercussions of the EU’s ban, concluding that costs were merely shifted into augmented retail prices, rather than diminishing the overall financial burden on consumers.
Citing Global Precedents
Opponents of the RBA’s initiative cite the U.S., New Zealand, Canada, and the EU as illustrative case studies emphasizing the hazards of blanket bans versus the merits of focused regulatory frameworks.
In New Zealand, regulations limit surcharges on specific low-value in-store transactions, aiming to mitigate scenarios where customers incur extra fees on minor purchases exceeding the displayed price.
This regulatory structure in New Zealand permits surcharges on alternative channels while affording merchants the leeway to reflect costs transparently when total prices are clear to consumers.
Canada employs a distinct regulatory schema, allowing merchants to impose surcharges within regulated limits, mandating clear disclosure.
Australian SMEs perceive the Canadian model as a viable means to maintain price signals between various payment types. They contend that transparent surcharges incentivize consumers to gravitate towards lower-cost options, such as debit cards and bank transfers.
Further, various groups are advocating for the mandated implementation of Dynamic Least Cost Routing for all dual-network debit card transactions. This routing mechanism optimally directs transactions through the cheaper of two available networks on a single card.
Proponents argue that such routing could effectively reduce costs at their source, diminishing the necessity for merchants to apply surcharges, while still empowering them to charge for high-cost cards.
Potential Impact on Small Businesses
SMEs alert that their profit margins cannot absorb inflated payment costs in the event that surcharges are eliminated. Many operate in sectors marked by regulated pricing, fixed fees, or fierce competition on advertised rates.
Businesses in travel, hospitality, and e-commerce heavily depend on surcharges as a direct mechanism for passing along card fees. They contend that the removal of this line item could jeopardize business viability and service quality.
This debate has also acquired a dimension related to the cost of living. Business groups assert that the absence of surcharges from particular users’ invoices would result in higher prices for the broader customer base.
Organizations representing SMEs argue that the fiscal impact would particularly disadvantage users of cash and debit cards.
They contend that these consumers will inadvertently subsidize rewards cardholders, who frequently benefit from loyalty schemes funded in part by merchant fees.
The AHA has sought to assess the implications of the proposed changes quantitatively.
“In net terms, businesses currently imposing surcharges would incur losses exceeding $1 billion,” the AHA stated in its submission.
The RBA is set to evaluate feedback from industry entities and consumer advocates prior to finalizing its position regarding surcharging and transaction routing regulations.
Source link: Ecommercenews.com.au.
