Central Banking

RBA caps interchange fees and surcharges

Reserve Bank of Australia completes two-year card review, implementing reform around surcharges and interchange fees; regulation now applies to ‘companion cards’
credit-cards
RBA completes card review

The Reserve Bank of Australia (RBA) announced new caps on interchange fees and surcharges today (May 26), as part of its efforts to build "a more efficient and competitive payments system".

After a two-year process of consultation, analysis and interviews with interested parties, the RBA published this final review of card payments regulation. It is principally concerned with the fees charged by banks and merchants for processing transactions, as well as "competitive neutrality" in the sector.

Interchange fees, the money charged by the issuer for processing card transactions, will be subjected to new standards from July 1, 2017. This includes both weighted-average benchmarks and individual interchange caps.

The weighted-average benchmark for credit cards will be kept at 0.5% of the transaction value, while for debit and prepaid cards a lower fixed fee of 8 cents per transaction will be introduced.

These will be supplemented with a ceiling of 0.8% for credit cards, and either 15 cents – or 0.2% if specified in percentage terms – for debit and prepaid cards.

To prevent interchange fees "drifting upwards" as they have done in the past, the bank announced compliance with the benchmark will be observed quarterly rather than every three years.

Small and medium-sized merchants who do not benefit from preferred interchange rates currently bear the cost of the high interchange rates on premium MasterCard and Visa cards.

The bank also hopes to see a "material reduction" in merchant service fees from the changes, helping to improve their competitiveness relative to larger merchants who may benefit from low interchange rates on all their card transactions.

An interchange fee cap will also be placed on American Express cards issued by banks as "companion cards" to Visa and MasterCards. Previously, these cards had not been included in the regulation regarding interchange fees, but they will now be included in the 0.8% cap.

Another key outcome of the review is a change in surcharge standards. "Merchants will not be able to impose high fixed-amount surcharges on low-value transactions, as has been typical for airlines," the RBA says of the new rules. The rules will apply to larger merchants from September 1, 2016, and to smaller merchants a year later.

Enforcement of these rules will come under the remit of the Australian Competition and Consumer Commission.

"The goal of the RBA's revised surcharging standard is to improve price signals to consumers about the relative costs of different payment methods," the bank says. Consistent with the recent amendments to the Competition and Consumer Act, the new standards will define a merchant's 'permitted surcharge' in terms of its "average cost of acceptance" for each scheme.

The definition of this cost includes merchant service fees – the money charged by the acquirer – as well as a "limited set of other payment costs paid to acquirers, payment facilitators or payment service providers".

"Any surcharge that a merchant chooses to levy must be specified as a percentage of the transaction value or, if set as a fixed amount, must not be exceed the cost of acceptance for the relevant transaction value," the bank says.

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