Surcharging on debit and credit cards will be outlawed within six months, after the Reserve Bank of Australia pushed ahead with sweeping reforms to slash transaction fees despite fierce opposition from major banks and small business groups.
In a decisive move, the central bank confirmed it will reduce the cap on credit card interchange fees—the fees paid by merchants to banks—from 0.8 per cent to 0.3 per cent of the transaction value. Banks have warned the change could wipe $660 million from their annual revenues.
The RBA has held its ground on the lower cap for consumer cards, first flagged nine months ago, after intense lobbying from the banking sector. Banks argued the reduction would force them to hike credit card interest rates, lift other fees, or dilute frequent flyer points linked to card spending. In a concession, however, the RBA will maintain the existing cap for commercial cards.
Governor Michele Bullock said the current surcharging system no longer worked as intended. “These changes will make card payments simpler for consumers and help businesses get better value from their payment services,” she said.
From October 1, surcharges on tap-and-go payments using eftpos, Mastercard or Visa will be banned entirely. The RBA estimates 16 per cent of businesses currently apply such surcharges. Consumers currently pay $1.6 billion a year in card payment surcharges.
The central bank is also introducing an interchange fee cap for foreign cards for the first time. Overall wholesale card payment costs for merchants are expected to fall by about $910 million annually. The RBA will introduce measures to ensure payment service providers pass those wholesale savings on to businesses.
If the cost savings are fully incorporated into prices, the RBA said it would result in a 0.1 per cent increase in the consumer price index.
While banks warned of revenue hits, the RBA signalled it was comfortable with lenders lifting fees on cards that attach frequent flyer points, as part of a broader push to reduce cross-subsidisation of high-cost rewards cards by other card users.
