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

[albyd]

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

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.

I wonder if by including Diners in its recently announced cuts (outside of its MC being affected by the interchange cuts), the reason why Citi chose to cut the earn rate for Diners (and the redemption rates because it could) was to make way for this new QFF card to be its new top points earner? Shame in a way as I don't collect QFF points as I'm a bronze member so unlikely to be able to use them for international travel which defeats the purpose.
I like Diners but for the declining acceptance but have managed to get reasonable spend through it. Will be interesting to see what gets launched in the next few months.

 

[cove]

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

Around July I may be able to dump quite a few of our many CCs once these changes take place. I have a Citi Prestige warehouse to transfer before a devaluation and the rest of our Australian cards transfer points monthly. Last night I was running up a heap of points/Miles off ATO payments and I am thinking the end is nigh for Australian credit cards to do this.

 

[opusman]

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

n 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.

That right there is the problem. It was basically a land grab, a government agency seizing private property without compensation.

Anyway I'm bowing out of this conversation since you are clearly never going to answer the "consumer benefit" question, which would possibly put your argument onto firmer ground. <redacted>

 

[Spongbob]

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

It was basically a land grab, a government agency seizing private property without compensation.

It is not the RBA who are making all these changes to credit reward programs, it is the card issuer. The banks etc are using the new in RBA regulation to justify their changes.
The card issuers could retain the current reward programs, but they have decided not to because it is not in their financial interest to do so.

 

[ozdenis]

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

Just because you didn't see a line item on your invoice saying "interchange fee" doesn't mean you weren't paying it.

In fact everyone was paying more for every item whether they used a credit card or not. Now only those wasting money on low-value add financial services are the ones who have to pay for it.

Overall you'll probably save money just buying AA miles rather than having every purchase cost an extra 1.5% to claim points.

I'm afraid you seem to be missing one important point with your comment Muppet. If as you say everybody has been paying "interchange fees" that have been hidden in the purchase price of whatever you buy, and I agree we have because these fees are a business cost, then now those using their credit cards are paying twice, the hidden fee and the new surcharge. Because I don't see the prices of goods coming down as a result of the hidden charges being removed. So if you purchase with cash it seems you are still paying the hidden fee, when you pay with credit card you pay twice. How is that benefiting the consumer?? In the past, to my knowledge only the Good Guys used to advertise - Pay Cash, Lower Price. I don't see too many other merchants doing this.

 

[Nutcase]

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

It is not the RBA who are making all these changes to credit reward programs, it is the card issuer. The banks etc are using the new in RBA regulation to justify their changes.
The card issuers could retain the current reward programs, but they have decided not to because it is not in their financial interest to do so.

The problem for card issuers is that their main revenue driver (interchange) has been significantly reduced.

In the case of "super premium", business cards and international cards that attract the highest interchange this has been reduced from around 2% to a maximum of 0.80%. Your black card is super premium. Any card that you use outside of Australia is deemed to be international and earns around 2% or more for the issuer depending on which country it is used in and vice versa - any card used in Australia from outside of the country has international interchange paid away on it.

We have established that interchange pays for rewards. Other revenue streams are not relevant here as most members of this board (and big spenders in general) do not pay annual fees, revolve a balance or pay other ancillary fees.

The cost of QF points (to my knowledge) has not reduced.

In this case where revenue has decreased (significantly) and the costs have remained the same, there is only one solution - reduce the costs (amount paid away in rewards). That is unless the cost of rewards is reduced and I don't see that happening.

If the issuers retained the current rewards programs, their cards issuing businesses would become unprofitable very quickly.

 

[Nutcase]

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

I'm afraid you seem to be missing one important point with your comment Muppet. If as you say everybody has been paying "interchange fees" that have been hidden in the purchase price of whatever you buy, and I agree we have because these fees are a business cost, then now those using their credit cards are paying twice, the hidden fee and the new surcharge. Because I don't see the prices of goods coming down as a result of the hidden charges being removed. So if you purchase with cash it seems you are still paying the hidden fee, when you pay with credit card you pay twice. How is that benefiting the consumer?? In the past, to my knowledge only the Good Guys used to advertise - Pay Cash, Lower Price. I don't see too many other merchants doing this.

This is a good point regarding interchange being opaque.

As far as "pay less, pay cash", I agree with this philosophy. Its also about avoiding the massive fees for "interest free finance" that GE (now latitude) and HSBC charge retailers for the privilege. By way of example 48 months interest free can cost a merchant well over 10%. Gerry Harvey predicated his entire business on this Interest free "deal" and the Good guys needed to compete.

Merchants tend to use a stick to punish those who use a card in order to discourage a behaviour rather that rewarding customers who pay cash and encourage that behaviour such is the case above.

 

[Kangol]

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.

Agree. What was the reason for allowing these surcharges? Who wins? Who loses?

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

I wonder why they removed restrictions? Pressure from businesses?
What they did is not the issue, why they did it is.

 

[Nutcase]

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

Agree. What was the reason for allowing these surcharges? Who wins? Who loses?




I wonder why they removed restrictions? Pressure from businesses?
What they did is not the issue, why they did it is.

The schemes had a clause in their contracts with the Banks (and subsequently the Banks with their Merchants) that surcharging was forbidden. This still applies in the USA. There was also a "accept all cards" rule meaning that a merchant couldn't decline a more expensive card in favour of a less expensive card (Decline a Black card in favour of a silver one).

This is viewed as anti competitive as well as illegal. Its was also seen as part of the cartel behaviour that the RBA was trying to flush out.

Essentially the schemes and the banks owned the space outright and were running riot with their own rules and regulations and the RBA didn't like that and wanted it regulated.

Whilst the end result has been a reduction in rewards to cardholders, there has been significant innovation. Australia is well ahead in EMV (chip and PIN) and contactless technology adoption compared with the USA. In the USA around 50% of terminals are EMV (Chip and PIN) enabled and less that 30% of Americans have made a contactless transaction compared with 80% of Aussies. The USA has very high and unregulated interchange.

 

[ermen]

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

I'm afraid you seem to be missing one important point with your comment Muppet. If as you say everybody has been paying "interchange fees" that have been hidden in the purchase price of whatever you buy, and I agree we have because these fees are a business cost, then now those using their credit cards are paying twice, the hidden fee and the new surcharge. Because I don't see the prices of goods coming down as a result of the hidden charges being removed. So if you purchase with cash it seems you are still paying the hidden fee, when you pay with credit card you pay twice. How is that benefiting the consumer?? In the past, to my knowledge only the Good Guys used to advertise - Pay Cash, Lower Price. I don't see too many other merchants doing this.

That is a fallacy and double counting. The fee is paid once, by the merchant to the interchange. consumers don't pay "twice". If that was the logical basis of this interchange fee reform, then the RBA is on very shaky logical grounds.

In fact, mandatory credit card / premium card surcharging is the probably the way to make the system fair. In that scenario, all prices should all be based off a cash price. people who want to pay by card (because they value the rewards), will pay the surcharge.

But now, the RBA, decide to arbitrarily cap interchange fees, like rental controls (remember micro 101 "manhatten rental controls") - it results in a very inefficient system. And are consumer's as a whole better off? I do not think so, because in practice, the merchant won't be reducing prices by what 1% come September. You can be sure of that..


And mind you, cash is also not "free" to handle...

But of course, in practice, the merchant will charge whatever he can get away with, and accept whatever payments he can get away with.

 

[Plutonus]

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

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

I disagree. The interchange fee forms part of the issuer's overall revenue. They then use this to fund things like fraud detection systems, new technologies, customer service, etc AND rewards. All things that benefit the consumer.

Evidently the cost of rewards would be the easiest to quantify and therefore the easiest to lower to make it look good on the books.

I still don't see how the RBAs mandated reduction in interchange will benefit the consumer.

 

[ermen]

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

Whilst the end result has been a reduction in rewards to cardholders, there has been significant innovation. Australia is well ahead in EMV (chip and PIN) and contactless

I do not see how you arrive to that observation and that logical conclusion. it is like saying yesterday's result was a consequence of something that happened in the future

The lower / regulated interchange fee regime hasn't kicked in yet, but yet you are saying it was because this new regulation that has made this technology happen.

I would posit that it was because of the current "cartel" interchange fees regime in Australia that were funding this investment in technology. Then, of course it seemed all too lucrative to the RBA, then they decided they wanted to meddle

Again, if that is the logical basis on the RBA's decision... it is on very shaky ground

 

[Nutcase]

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

I disagree. The interchange fee forms part of the issuer's overall revenue. They then use this to fund things like fraud detection systems, new technologies, customer service, etc AND rewards. All things that benefit the consumer.

Evidently the cost of rewards would be the easiest to quantify and therefore the easiest to lower to make it look good on the books.

I still don't see how the RBAs mandated reduction in interchange will benefit the consumer.

Given that the highest interchange is paid on the cards with the highest rewards, the argument that interchange pays for innovation is going to be hard to make. Conversely, no frills cards have the lowest interchange yet the payment is the same and done on the same rails.

There are other revenue buckets to pay for fraud, customer service and technology that are not opaque and are paid for by the card holder rather than a card acquirer (another Bank) and ultimately a merchant.

Reduced interchange means that the merchant pays less in merchant service fees. Smaller fees mean smaller overheads and lower prices. Thats the economic argument.

 

[ermen]

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

Given that the highest interchange is paid on the cards with the highest rewards, the argument that interchange pays for innovation is going to be hard to make. Conversely, no frills cards have the lowest interchange yet the payment is the same and done on the same rails.

This is an AFF forum.

So, an F seat goes into the same tube of metal
a J seat goes into the same tube of metal
a Y seat goes into the same tube of metal
an O seat goes into the same tube of metal
an X seat goes into the same tube of metal

All have different prices.
All combine to make the economics of the "tube of metal" work.

Go figure...

 

[Nutcase]

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

I do not see how you arrive to that observation and that logical conclusion. it is like saying yesterday's result was a consequence of something that happened in the future

The lower / regulated interchange fee regime hasn't kicked in yet, but yet you are saying it was because this new regulation that has made this technology happen.

I would posit that it was because of the current "cartel" interchange fees regime in Australia that were funding this investment in technology. Then, of course it seemed all too lucrative to the RBA, then they decided they wanted to meddle

Again, if that is the logical basis on the RBA's decision... it is on very shaky ground

Interchange has been declining since the early 2000's. Currently the wholesale weighted average is 0.50% with no cap and some cards are excluded. The Banks and schemes have thumbed their noses at this and we are running significantly higher that 0.50%. Due to the inability for them to self regulate, the RBA has stepped in and put a hard cap in place (0.80%) and included more cards into the average calculation.

As interchange has fallen over the last decade or so, innovation has increased. As a result we have ubiquitous EMV and contactless adoption, Cards are accepted for just about everything in Australia. Compare this with the USA where 50% of terminals are not compliant and contactless hasn't been properly rolled out yet.

 

[Plutonus]

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

Given that the highest interchange is paid on the cards with the highest rewards, the argument that interchange pays for innovation is going to be hard to make. Conversely, no frills cards have the lowest interchange yet the payment is the same and done on the same rails.

There are other revenue buckets to pay for fraud, customer service and technology that are not opaque and are paid for by the card holder rather than a card acquirer (another Bank) and ultimately a merchant.

Reduced interchange means that the merchant pays less in merchant service fees. Smaller fees mean smaller overheads and lower prices. Thats the economic argument.

I did not dispute that interchange pays for rewards, but that is not all it would pay for. If one wants to run that argument and claim stepped interchange fees with correlated rewards points proves their point, why is there any fee at all for cards that have no rewards scheme?

I look forward to everyone reporting back on 1 July with positive experience of prices dropping 1%+ everywhere when paying by 'premium' Mastercards and Visas.

 

[Nutcase]

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

I did not dispute that interchange pays for rewards, but that is not all it would pay for. If one wants to run that argument and claim stepped interchange fees with correlated rewards points proves their point, why is there any fee at all for cards that have no rewards scheme?

I look forward to everyone reporting back on 1 July with positive experience of prices dropping 1%+ everywhere when paying by 'premium' Mastercards and Visas.

Qantas has priced frequent flyer points (the amount that Banks pay for them) at the exact amount that soaks up all the interchange. Interesting isn't it? Remember when Qantas also changed the rules a few years back and made all by 1 card into a direct points earning card? This is how Qantas owns the space and controls its liability

The hypothesis that the RBA looks at is to remove interchange completely and see what would happen. Rewards would disappear. Thats it.

 

[ermen]

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

Interchange has been declining since the early 2000's. Currently the wholesale weighted average is 0.80% with no cap and some cards are excluded. The Banks and schemes have thumbed their noses at this and we are running significantly higher that 0.80%. Due to the inability for them to self regulate, the RBA has stepped in and put a hard cap in place (0.80%) and included more cards into the average calculation.

As interchange has fallen over the last decade or so, innovation has increased. As a result we have ubiquitous EMV and contactless adoption, Cards are accepted for just about everything in Australia. Compare this with the USA where 50% of terminals are not compliant and contactless hasn't been properly rolled out yet.

So let's be clear - is the interchange increasing or falling?
If it's falling, then why is the RBA stepping in and meddling?
If it's increasing, then the increase in the interchange surely is helping to pay for the innovation we have seen.

The hypothesis that the RBA looks at is to remove interchange completely and see what would happen. Rewards would disappear. Thats it.

That is undisputed.
More likely the RBA (or the person who started this whole thing) has a vendetta against points earnings cards. But is disguising it under something else.

 

[Nutcase]

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

This is an AFF forum.

So, an F seat goes into the same tube of metal
a J seat goes into the same tube of metal
a Y seat goes into the same tube of metal
an O seat goes into the same tube of metal
an X seat goes into the same tube of metal

All have different prices.
All combine to make the economics of the "tube of metal" work.

Go figure...

The end result is the same - You get to your destination

With an airline, the way that you get there, the service that you receive, the large seat/bed that you enjoy, the food that you eat, the flexibility of the ticket, the luggage allowance are all different on each ticket and you pay for that willingly for the benefits as the consumer directly to the airline.

With a payment, the journey and the destination are the same. There are no frills with the payment. It doesn't arrive any quicker however the merchant pays more for it for no other reason than the card type and your choice to use that card.

Using your airline example the expectation would be that you would be in Business class without paying for it and everyone in economy would be subsidising it. Your benefit of flying business would be given to you only because you were a Qantas club member who paid an annual fee for that membership and the benefits that it brings.

Sounds fair to me - I just cant see how it would work though.

 

[Nutcase]

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

So let's be clear - is the interchange increasing or falling?
If it's falling, then why is the RBA stepping in and meddling?
If it's increasing, then the increase in the interchange surely is helping to pay for the innovation we have seen.



That is undisputed.
More likely the RBA (or the person who started this whole thing) has a vendetta against points earnings cards. But is disguising it under something else.

1) Net interchange is falling. Currently there is no limit on how much interchange that can be charged its the average that needs to be 0.50%
2) The cap will be 0.80% & the average will be 0.50%. This is the pain point as some cards have interchange of up to 2% like your black card (if you have one)
3) The RBA's position aligns with the rest of the worlds governing banks. There is no individual vendetta.

The main issue for Australia is Qantas loyalty. There are 11 million members and it dominates the reward space and people want their points.