Is the RBA incompetent and trying to be too clever with interchange fee regulation?

[straitman]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Several attacking and OT posts have been removed.

Let's go back to and remain on topic please.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

But of course, cash transactions come at no cost to a big hotel

A big Hotel shouldn't be dealing with a lot of cash and should be encouraging customers to use cards.

Big Hotels LOVE the idea of a pre-auth if you do a runner but HATE the idea of paying for the privilege.

Big Hotels are also the largest users of AMEX, Diners, Super premium and International scheme cards all of which come at a higher cost.

There's a connection here.

In my banking days, less experienced Bankers would get all excited about an airline or an international hotel wanting to bring their merchant business across. , One specific example I remember was Doyles restaurant at circular quay wanting a new merchant facility.

It was my job to spend an hour explaining to bankers why it would not be a good idea to have these clients on our books.

The reason? International cards, super premium cards and (in the case of airlines) risk.

 

[dajop]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Businesses simply do not see cash handling as an expense or a risk. They seem to like it for some reason - especially small businesses.

Oh I'm sure we all know one very good reason some small businesses prefer cash to more traceable forms of payment

 

[trippin_the_rift]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Sounds to me that if RBA banned surcharging that all these problems would disappear...

You know...the exact problem they created in the first place by allowing them.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Sounds to me that if RBA banned surcharging that all these problems would disappear...

You know...the exact problem they created in the first place by allowing them.

Recouping the cost of processing the card transaction is reasonable. The problem lies in allowing the market to regulate itself. Cab-charge were the original perpetrator charging 10% for basically, nothing. Anything above cost is not acceptable.

There are other issues as well;

1) How Banks charge merchants for merchant facilities. These are usually blended due to the banks legacy billing systems and for ease of merchant comms
2) The complexity of interchange, how it works and how poorly banks communicate this
3) The inability for Banks to allow surcharging based on card type
4) "BIN flip" - This is where the bank does a soft change to the card type without issuing a new card. The merchant thinks its a gold card but the interchange is super premium
5) The different moving parts that make up a merchant fee. (Interchange + Scheme fees + Banks Margin)
6) The banks cards businesses are split down the middle - Acquiring and Issuing and never the twain shall meet

To a degree, the market does regulate this situation by allowing the customer to either pay another way or not using that merchant.

 

[Plutonus]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

"What benefit does interchange bring to anyone besides you, the premium card holder?"

I am no expert, but I believe the interchange funds more than just loyalty points, including the (assuming) expensive network that handles transactions and innovation that makes life easier for consumers.

What benefit does lower interchange bring to anyone besides the businesses that now pay less to accept payments? Should I expect to see the price of everything I buy using my ANZ Black drop by 1.5% on 1 July?

 

[opusman]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Of course not, that would be a benefit to consumers and we've already established that the RBA doesn't care about consumers.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

I am no expert, but I believe the interchange funds more than just loyalty points, including the (assuming) expensive network that handles transactions and innovation that makes life easier for consumers.

What benefit does lower interchange bring to anyone besides the businesses that now pay less to accept payments? Should I expect to see the price of everything I buy using my ANZ Black drop by 1.5% on 1 July?

Interchange is the opaque fee that the acquirer of the transaction pays to the issuer of the card. One of the main reasons why rewards points are paid out of this revenue bucket is because it is directly linked to the spending on the card.

Interchange adds no value in the payments value chain and exists purely to pay for rewards.

Whilst Interchange is only one revenue driver and adds no value it is the main revenue driver. The other issue is that Banks are both Acquirers and issuers therefore if you are the largest issuer of cards (CBA in AU) and a merchant acquirer (CBA is the largest there too) as well then you are miles ahead as you wont be paying interchange away on you own transactions. These transactions are referred to as "on us" meaning the the acquirer and the issuer are the same bank. This is why the RBA call it a cartel and that there have been no new entrants to the market in nearly 20 years (except Tyro)

The revenue buckets for card issuers (in order of revenue earned) are;

Interchange
Annual fees
Revolving credit
Ancillary fees (FX, late fees cash advance etc)

Keep in mind that most people on this board say that they pay No Annual fees, Pay no interest or ancillary fees (if they can avoid it). This makes them very unprofitable from a card issuers perspective now that interchange (the main revenue bucket) is so depleted AND points are being paid for out of this as well.

The revenue buckets for card acquirers are

Merchant service fees
Terminal rental
Ancillary fees (chargebacks etc)

The complexity and opaque nature of interchange and how the system works makes it a minefield. There are also fees to switch transactions, gateways as well as fraud to consider as well.

If there was another revenue bucket to pay FF points out of, it would have been found and exploited.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Of course not, that would be a benefit to consumers and we've already established that the RBA doesn't care about consumers.

The RBA's position is that consumers who use cheaper payment methods (EFTPOS, Scheme debit, standard cards) subsidise the benefits of those who use more expensive payment methods even though the rails on which those payments travel are the same.

This has been their position since the 1990's when they started this journey and wanted interchange at 0.00% and scheme debit eliminated in favour of EFTPOS. The investment in EFTPOS has been too little too late which is why this position with interchange continues.

 

[ermen]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Why doesnt the RBA mandate a credit card surchage on all transactions?

All who are willing to pay for the points / rewards will do so, those who don't, won't.

Instead it sets an arbitrary price cap.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Why doesnt the RBA mandate a credit card surchage on all transactions?

All who are willing to pay for the points / rewards will do so, those who don't, won't.

Instead it sets an arbitrary price cap.

Why should the RBA develop a system specifically for points schemes? Rewards are a privilege.
The RBA lets the market decide on surcharges. Its up to merchants to educate themselves about fees and charges and work this out for themselves. Its also up to the card holders to decide if they want to do business with these merchants.

The RBA are looking for efficiency and a high interchange environment is not efficient or innovative.

Frankly, any merchant who doesn't accept cards is doing themselves a disservice and they need to make this part of their pricing model. If their business cant absorb the fees then they should not offer the service or adjust the prices accordingly. Its the same with minimum spend thresholds. These are ridiculous and short sighted.

As an example; I frequent an establishment that has a $10 minimum spend threshold on cards. Once I have paid to enter (above $10) and I want to buy a coffee or a coke I cant do that due to their policy. I worked out recently that I would have spent around $500 in a year at this establishment IF they had lifted their $10 minimum spend. This is a classic example of short sightedness and lack of understanding by the merchant. I have tried to have the conversation with them and all I get in response is "bank fees" which is not true but they like to believe it. This is half the problem.

 

[dajop]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

All who are willing to pay for the points / rewards will do so, those who don't, won't.

Maybe there's an opportunity for banks to charge a proportional monthly fee, instead of fixed annual fee for those who want the increased earn So instead of earning say 0.5 Velocity points per dollar, you pay a monthly fee of 1.0% of spend that bumps the earn rate to 1.5 Velocity points per dollar, or whatever.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Maybe there's an opportunity for banks to charge a proportional monthly fee, instead of fixed annual fee for those who want the increased earn So instead of earning say 0.5 Velocity points per dollar, you pay a monthly fee of 1.0% of spend that bumps the earn rate to 1.5 Velocity points per dollar, or whatever.

There is an idea floating around at the moment which is similar in that the merchant will pay for points directly from the supplier (Velocity, QFF, Pinpoint) to the customer and keep the cards issuers out of paying for the points but the card issuers will still have some involvement. This is also why QF like the Qantas mall and have a direct relationship with the merchant.

Citi are speaking with QF loyalty directly too. Not sure how that will shake out but some kind of exclusive card is on the cards (pardon the pun).

Personally, I want to see Diners Club flourish again like it did with the Ansett golden wing Diners club card. Diners also own the "Carte Blanche" brand which I like. I guess Im old school. With all that said, the reality of Diners coming back is unlikely. Pity really.

 

[opusman]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Why should the RBA develop a system specifically for points schemes? Rewards are a privilege.
The RBA lets the market decide on surcharges. Its up to merchants to educate themselves about fees and charges and work this out for themselves. Its also up to the card holders to decide if they want to do business with these merchants.

The RBA are looking for efficiency and a high interchange environment is not efficient or innovative.

Why should the RBA stick its nose in at all?

If they wanted an (economic) scientifically pure payment system without hidden fees or whatever, why not create their own? The card "schemes" as you love to call them with your insider jargon were set up by private companies, who have invested significant amounts into the technology that most people (other than a few RBA boffins, seemingly) rely on today. If the RBA didn't like how the "schemes" were developing why didn't they setup their own, free-of-charge electronic payment systems decades ago? You say that's what they "want", but they did nothing to achieve it themselves.

The RBA seems to have contributed nothing towards consumers, society or indeed business except unnecessary regulation. But keep taking credit for the success of the economy if it makes you feel better about yourself.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Why should the RBA stick its nose in at all?

If they wanted an (economic) scientifically pure payment system without hidden fees or whatever, why not create their own? The card "schemes" as you love to call them with your insider jargon were set up by private companies, who have invested significant amounts into the technology that most people (other than a few RBA boffins, seemingly) rely on today. If the RBA didn't like how the "schemes" were developing why didn't they setup their own, free-of-charge electronic payment systems decades ago? You say that's what they "want", but they did nothing to achieve it themselves.

The RBA seems to have contributed nothing towards consumers, society or indeed business except unnecessary regulation. But keep taking credit for the success of the economy if it makes you feel better about yourself.

Whats with all the ad hominem tonight? You might want to dial it back a bit.

Payments System | RBA

Have a read of the papers published by the RBA so that we can engage in some meaningful dialogue. There is a lot of information in these documents that will fill in the blanks for you and perhaps take the edge off a bit.

 

[JohnPhelan]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

All of this started with the ridiculous decision by the RBA some years ago to allow merchants to levy surcharges on credit cards. Why don't they also allow levies for electricity, lighting, muzak, workers comp premiums, etc??? All of these things are - like the cost of accepting credit cards - simply a cost of doing business, to be borne by the retailer and recouped by way of overall pricing.

If it was to interfere at all, the only action by the RBA that was necessary was to outlaw card surcharges. Full stop. And put it back to the way it used to be.

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

All of this started with the ridiculous decision by the RBA some years ago to allow merchants to levy surcharges on credit cards.

Thats not quite true.

From the RBA website which fully explains the RBA's position

The Payments System Board (PSB) of the Reserve Bank oversees the payments system in Australia. It is responsible for promoting the safety and efficiency of the payments system and through the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998, the Reserve Bank has one of the clearest and strongest mandates in the world in relation to payments systems.
The Bank consults closely with participants in the payments industry. The Bank is represented on a number of industry committees responsible for the day-to-day management of payments clearing systems and Bank staff regularly meet with industry representatives and other regulators.
Detail on the structure and operations of the Australian payments system can be found in Payment Systems in Australia (Red Book) and the activities of the Bank's Payments System Board are reported in its Annual Reports.


Australia was among the first countries in the world to make efficiency of payment systems a statutory objective of the central bank. In pursuit of this mandate, the Reserve Bank has encouraged a reduction in cheque-clearing times and the take-up of direct debits as a means of bill payment, and taken a number of steps to improve the competitiveness and efficiency of card systems. Initially the latter focus was on credit card systems. In 2001, the Bank designated the Bankcard, MasterCard and Visa credit card systems as payment systems under the Payment Systems (Regulation) Act. Designation is the first step in the possible establishment of standards and/or an access regime for a payment system. After extensive consultation, the Bank determined Standards for the designated schemes which lowered interchange fees and removed restrictions on merchants charging customers for the use of credit cards, and imposed an Access Regime which facilitates entry by new players.

Payments System | RBA

 

[JessicaTam]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Several attacking and OT posts have been removed.

Let's go back to and remain on topic please.

[mod hat]
Further posts have been deleted and infractions have been given.

I the attacks continue more severe action will be taken.
[/mod hat]

 

[CaptJCool]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Competition and Consumer Amendment (Payment Surcharges) Act 2016


https://www.legislation.gov.au/Details/C2016A00009

the RBA is the implementation wing of Govt....

originally I had a Gold CC and one day the bank sent me a Platinum free. What it didn't tell me was it meant higher commissions for them. The clip of each transaction gig. If you think about the real cost of hosting a merchant account, is it really the case that each transaction costs a different amount? And clearly with all the new / switch credit card FF points incentives on offer, plenty of money is made ....

Anyway back to my now Plat card, the points earn had been 2:1, then 1:1, and today 0.5:1, so I had already been fee gouged..... so when this all turns up, there's nothing much more to drop....and Qantas cashcard turns up with no annual fees and no rewards program fees....

A flat fee for service makes more sense than any percentage of cost if it's really about cost recovery... credit card companies will find new ways to extract considerable profit.....

 

[Nutcase]

Re: Is the RBA incompetent and trying to be too clever with interchange fee regulatio

Competition and Consumer Amendment (Payment Surcharges) Act 2016


https://www.legislation.gov.au/Details/C2016A00009

the RBA is the implementation wing of Govt....

originally I had a Gold CC and one day the bank sent me a Platinum free. What it didn't tell me was it meant higher commissions for them. The clip of each transaction gig. If you think about the real cost of hosting a merchant account, is it really the case that each transaction costs a different amount? And clearly with all the new / switch credit card FF points incentives on offer, plenty of money is made ....

Anyway back to my now Plat card, the points earn had been 2:1, then 1:1, and today 0.5:1, so I had already been fee gouged..... so when this all turns up, there's nothing much more to drop....and Qantas cashcard turns up with no annual fees and no rewards program fees....

A flat fee for service makes more sense than any percentage of cost if it's really about cost recovery... credit card companies will find new ways to extract considerable profit.....

Dont forget Qantas in all of this. They charge for the points.

"In the case of Qantas in particular the loyalty program has earned about $1.4 billion in the past 5 years when theairline group itself has earned about $2 billion," said leading airline economist Tony Webber.

As for a flat fee; This is where EFTPOS is sitting as well as scheme debit whose standard interchange will be capped at $0.08. Not every interchange rate is a %.

https://www.visa.com.au/about-visa/interchange.html#1


Domestic Visa Debit Interchange Rates

Description	Rate inclusive of GST**
Strategic Merchant Program rate	2.2 cents – 8.8 cents
Recurring Payment rate	6.6 cents
Government rate	6.6 cents
Utility rate	6.6 cents