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The Reserve Bank of Australia (RBA) is seeking feedback on its issue paper on merchant payment costs and surcharging, with a view to addressing its concerns about interchange fees, scheme costs and merchant surcharging.
The consultation reflects a wider regional trend, with New Zealand conducting a similar (albeit less comprehensive) review in August 2024.
Key Considerations
The consultation covers four main areas of potential regulatory form:
- The regulation of interchange fees.
- The regulation of scheme fees.
- The imposition of merchant service fees.
- The regulation of merchant surcharging.
The RBA points out that although interchange fees in Australia have generally fallen, they still rank high above other similarly developed economies. At a local level, the RBA also states that there is very little transparency on these fees at present, and large disparities still exist between merchants of different sizes and cards of different origins. Keeping these issues in mind, the RBA is seeking feedback on whether fee caps should be lowered, if disparities between merchants and between foreign and local card transactions should be reduced or eliminated, and whether it would be more prudent to have a simplified and more transparent fee structure.
When considering scheme fees, the RBA notes that in addition to being one of the biggest costs to merchants associated with processing payments, they are significantly opaque in terms of what fees they charge and have actually increased in charges and complexity over time. The RBA also expresses its concern that the benefits of least-cost routing are not being adequately passed down to its members. In formulating its approach to these concerns, the RBA is seeking feedback on whether there should be increased transparency on scheme fees for merchants and what sort of regulatory intervention might be most effective to do this. Additionally, it is also considering formally regulating the implementation of least-cost routing for in-person card transactions.
On the imposition of merchant service fees, the RBA once again raises the issue of transparency and seeks feedback on whether it should intervene to make these fees more transparent — and if so, what measures would be appropriate.
Outlining its concerns on merchant surcharging, the RBA notes that (unsurprisingly) surcharging had proved unpopular with customers, and that the rise of single rate payment plans (along with unscrupulous surcharging and bundled fees) means that consumers are often being charged far more than what their payment actually cost.
To address this, the RBA has listed a number of potential regulatory interventions, including the capping or an outright ban on surcharging, tightening the regulatory scope of acceptance fees, increased regulatory oversight and mandated differentiated pricing based on the exact network used.
Why Should You Care?
If implemented, the proposed regulatory reforms in this consultation may require a number of actions from both payment service providers and merchants in Australia, in addition to being a weather vane for potential regulatory action by other jurisdictions in this area of concern.
Interchange Fees
The imposition of the proposed regulatory interventions may mean payment service providers incur extra compliance costs to disclose their fees. From a business perspective, the standardisation of fees in addition to the proposed lowering of caps may also affect toplines.
Merchants may benefit from the standardisation of these fees, especially if the cap is lowered or if they process a significant amount of international card transactions, although this may erode the advantage of any merchants that negotiated a lower fee with a payment service provider in the past.
Scheme and Merchant Service Fees
Payment service providers may be required to disclose their scheme and merchant service fees. They may also be required to implement least-cost routing mechanisms in their payment devices.
Merchants are likely to benefit from increased transparency of merchant and scheme fees. However, they may incur some costs if they are required to upgrade their payment processing equipment to support the use of least-cost routing as standard.
Merchant Surcharging
Payment service providers may be legally required to implement new agreements with the merchants they serve if single charge agreements and bundled fees are outlawed by the RBA.They may also face increased pressure to lower fees in general if surcharging is banned.
Merchants, on the other hand, are likely to incur a direct financial cost if surcharging is disallowed. They are also likely to face increased regulatory supervision from the RBA and other associated regulators to ensure that the surcharge they impose covers only the cost of payment and nothing more. From an operational perspective, they may also need to implement mechanisms and/or equipment to allow them to impose differentiated pricing based on the payment network used in each individual transaction.
Any feedback on the issue paper should be submitted via email to pysubmissions@rba.gov.au by December 3, 2024.
