Lower Bank interchange fees to 'enhance' credit card earn rates

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

My reading of the new rules is debit cards will be $0.12 or 0.2%, which ever is higher. Still a big decrease however.

The RBA have always hated scheme debit cards and wanted EFTPOS to compete hence the price change.

This competition never really eventuated and EFTPOS are still an odd player. The main reason is that they dont have an online solution for payments and have got into bed now with paypal. Most consumers dont realise that EFTPOS (ePal Australia) are a seperate company albeit one that is owned by banks and Woolworths and when you choose "CHQ or SAV" you are routing the transaction down their pipe instead of Visa or Mastercard's pipe.

The party is almost over for them now.

 

[psi999]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Thanks - I know that I can be quite controversial and polarising at times.

8) I would get a Diners/MCW combination right now.

I hope this answers your questions.

Indeed. Thanks.

On point 8, any more info around this (and the urgency?). What am i not seeing here.

I do recall from a few of your posts last year that you were a bit of a Diners fan (and may had even worked there there in the past?).

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Indeed. Thanks.

On point 8, any more info around this (and the urgency?). What am i not seeing here.

I do recall from a few of your posts last year that you were a bit of a Diners fan (and may had even worked there there in the past?).

Correct on both counts.

Diners is a sleeper in the market. Changes in interchange will drive different behaviour for banks who will look for other revenue opportunities. There is now an opportunity for Diners as well as the banks with reductions in interchange. As Diners is a closed loop like Amex there is no interchange or regulation. Banks like unregulated products a lot. This is why they issue those toxic travel cards.

The Diners product itself is very good albeit let down by poor service at times and limited merchant acceptance. The World Mastercard attached to the Diners is not impacted by the RBA changes expect for the 0.80% cap. Citibank issue both the Diners and the Mastercard. See where Im heading with this? Its different to the ANZ product which has 2 different issuers sharing one credit facility in a deliberate way to get around the interchange issues/FF points earn on scheme cards.

Merchants will also not be able to surcharge over the amount that they pay which for Amex and Diners is almost the same.

Amex created a rod for their own back getting into bed with the big 4 and its been on the cards (pardon the pun) for the RBA to crack down on the companion cards for years. The RBA tries to let the market regulate itself and when that doesn't happen they act.

If I was Qantas - I would either buy Diners club or cut an exclusive deal with them. Then you would see some serious action in this space. Given that its a franchise (owned by Citibank) and it used to be majority owned by Ansett this is not as far fetched as it sounds.

 

[Isochronous]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I tried testing out the BankWest internal secure mail system to see what they said about the reasons for the changes. They are not being honest. The replies I got stated:

"I can confirm xx_, legislative changes made in 2015 have reduced the interchange earnings that are used to directly subsidise the cost of reward points, as a result the product features need to be updated to continue to deliver a sustainable product."

I then asked them to name what specific legislation was changed. Their answer:

"Our Credit Cards team has investigated and advised of the following:

-This was driven by the RBA, which basically looks to cap the interchange income earned. As a business we decided to make the necessary changes to offset this cap/reduction.

-For further information, you can visit the Reserve Bank of Australia's website, their media release is named: Consultation on Changes to the Bank's Standards for Card Payment Systems."

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I tried testing out the BankWest internal secure mail system to see what they said about the reasons for the changes. They are not being honest. The replies I got stated:

"I can confirm xx_, legislative changes made in 2015 have reduced the interchange earnings that are used to directly subsidise the cost of reward points, as a result the product features need to be updated to continue to deliver a sustainable product."

I then asked them to name what specific legislation was changed. Their answer:

"Our Credit Cards team has investigated and advised of the following:

-This was driven by the RBA, which basically looks to cap the interchange income earned. As a business we decided to make the necessary changes to offset this cap/reduction.

-For further information, you can visit the Reserve Bank of Australia's website, their media release is named: Consultation on Changes to the Bank's Standards for Card Payment Systems."

What is dishonest about this? Interchange funds rewards programs and interchange is being reduced.

The response you have been given is true and correct not only for BWA but also for Citibank, ANZ and CBA who have all moved because of the RBA changes.

The cards businesses of all of these banks are exactly the same except for the scheme rules which differ between Visa and MCW in some respects.

The numbers don't lie.

Have you read the RBA paper? If not, then I suggest that this would be a good starting point before sending messages to BWA expecting a different response. Im not entirely sure what response you were expecting.

 

[Mr_Orange]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

What is dishonest about this? Interchange funds rewards programs and interchange is being reduced.

The response you have been given is true and correct not only for BWA but also for Citibank, ANZ and CBA who have all moved because of the RBA changes.

The cards businesses of all of these banks are exactly the same except for the scheme rules which differ between Visa and MCW in some respects.

The numbers don't lie.

Have you read the RBA paper? If not, then I suggest that this would be a good starting point before sending messages to BWA expecting a different response. Im not entirely sure what response you were expecting.

Except that the changes don't take effect for another year, so we are being gouged for the next 12 months whilst the banks make money on the current interchange rates but only pay the reduced points earn.

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Except that the changes don't take effect for another year, so we are being gouged for the next 12 months whilst the banks make money ont he current interchange rates but only pay the reduced points earn.

The second part of my question "Have you read the RBA paper.....?" was put there for a reason and this hasn't been answered so I will presume that you haven't read it.

Understanding how this works will explain why they have moved now.

The RBA was reviewing the wholesale weighted average every 3 years. That will now move to every 3 months.

The main reason for this intervention and the clampdown is because the banks have been playing games with the wholesale weighted average for years. It has meant to be 0.50% from 2001 and has been hovering between 0.62% and 0.70% instead. They could not behave themselves. The wholesale weighted average also excluded some card types and larger merchants who have now been included in the calculation.

This is why they have moved now and not in 2017.

To recap;

1) The calculation of wholesale weighted average is also changing to include large merchants (and other categories)
2) The cap is being implemented in 2017 to 0.80% which is only part of the picture
3) AMEX companion is being included which has been on the cards for years

Perhaps reading the RBA paper will explain more.

 

[Isochronous]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

The second part of my question "Have you read the RBA paper.....?" was put there for a reason and this hasn't been answered so I will presume that you haven't read it.

Understanding how this works will explain why they have moved now.

The RBA was reviewing the wholesale weighted average every 3 years. That will now move to every 3 months.

The main reason for this intervention and the clampdown is because the banks have been playing games with the wholesale weighted average for years. It has meant to be 0.50% from 2001 and has been hovering between 0.62% and 0.70% instead. They could not behave themselves. The wholesale weighted average also excluded some card types and larger merchants who have now been included in the calculation.

This is why they have moved now and not in 2017.

To recap;

1) The calculation of wholesale weighted average is also changing to include large merchants (and other categories)
2) The cap is being implemented in 2017 to 0.80% which is only part of the picture
3) AMEX companion is being included which has been on the cards for years

Perhaps reading the RBA paper will explain more.

An RBA paper is not legislation, and in any event the caps do not take effect immediately.

 

[psi999]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

An RBA paper is not legislation, and in any event the caps do not take effect immediately.

Wasnt the last (current) round of cuts more to do with the interchange rate change Effective 1 November 2015?

How the interchange cap will affect credit card frequent flyer points - Australian Business Traveller

Cuts to interchange rates: reward points cuts

A 'first taste' of these cuts came in 2015 when merchant fees for 'super premium' cards such as Visa Signature, Visa Infinite and MasterCard World were originally slashed, as some issuers quickly cut points earning as a result.
Most prominent was Citibank which told Australian Business Traveller at the time: "Due to the external re-pricing of interchange rates, effective 1 November 2015, the revenues that Citi receives from individual credit card transactions have significantly decreased.
"As a result of this change, Citi has advised customers that its credit card rewards program will be amended from March next year," the spokesperson added.
Those changes lowered the number of frequent flyer points earned via Citi Prestige Visa Infinite rewards cards by roughly 25% on some transactions, cut from a maximum equivalent of 1.33 to 1.0 frequent flyer points on everyday purchases.
At the same time, reductions were also made to earning rates on the bank's Citi Visa Signature cards with new monthly earning limits imposed on spend within Australia, resulting in no points at all being awarded on transactions that exceeded those limits.

Visa Australia | About Visa | Interchange | Interchange

Interchange rates | MasterCard®

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

An RBA paper is not legislation, and in any event the caps do not take effect immediately.

I have attempted to explain clearly what is going on and why there are changes in the market occurring now and why there are more to come. This includes explaining how interchange works and how the wholesale weighted average works as well as the impacts even going so far as explaining how to mitigate them.

I could go further and explain to you how interchange is over ruled depending on the merchant catagory and how that impacts not only the wholesale weighted average, but also why these moves are occurring now.

The reason why I am not going to do that is because your response was petulant.

You have not read or understood the paper and you refuse to listen to reason both from BWA and also from me.

Good luck with your fight.

 

[ragingsheep]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I tried testing out the BankWest internal secure mail system to see what they said about the reasons for the changes. They are not being honest. The replies I got stated:

"I can confirm xx_, legislative changes made in 2015 have reduced the interchange earnings that are used to directly subsidise the cost of reward points, as a result the product features need to be updated to continue to deliver a sustainable product."

I then asked them to name what specific legislation was changed. Their answer:

"Our Credit Cards team has investigated and advised of the following:

-This was driven by the RBA, which basically looks to cap the interchange income earned. As a business we decided to make the necessary changes to offset this cap/reduction.

-For further information, you can visit the Reserve Bank of Australia's website, their media release is named: Consultation on Changes to the Bank's Standards for Card Payment Systems."

The changes were made in regards to the new interchange rates under the existing regime that was brought into place in November 2015.

The RBA is fully entitled to regulate interchange as part of the Payment Systems (Regulation) Act 1998 and therefore when the RBA releases a paper stating - "this is what we're going to do in regards to these payment systems", then it's been empowered by existing legislation to do so or the sitting government of the day is generally more than happy to amend legislation to give the RBA such powers (especially since interchange reform was part of the FSI and both major parties accepted those recommendations) to do so.

 

[Pleb Status]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

An RBA paper is not legislation, and in any event the caps do not take effect immediately.

The actual Commonwealth legislation refers directly to the 'RBA standard' to set the 'rules', so it is effectively the legislation.

 

[theevilmuppet]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Again, the RBA Payment Systems Board has shown themselves to be completely incompetent and all appointees need to resign or be dismissed.

There are precisely zero upsides to these changes. Seeing award programs cut whilst seeing no improvement in pricing (which is exactly what will happen for the vast majority of purchases), reduction in revenue to card issuers and airlines will only result in the organisations involved reducing staff numbers.

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Again, the RBA Payment Systems Board has shown themselves to be completely incompetent and all appointees need to resign or be dismissed.

There are precisely zero upsides to these changes. Seeing award programs cut whilst seeing no improvement in pricing (which is exactly what will happen for the vast majority of purchases), reduction in revenue to card issuers and airlines will only result in the organisations involved reducing staff numbers.

Exactly how are they incompetent?

Interchange regulation is not just an Australian issue. It is a red hot issue in the payments space globally.

Just because your rewards are being reduced does not make the RBA incompetent. That argument is post hoc ergo propter hoc.

The RBA has been held to ransom by the schemes and Amex who have played games with interchange since this all started in 2001. The RBA has asked nicely, repeatedly for the schemes, Amex and the banks to self regulate and they have misbehaved. The RBA has also stated on numerous occasions that the don't want to be the policeman for this however there is no choice.

The "wholesale weighted average" was a compromise and excludes major merchants, overseas cards and other card types.

The RBA has always wanted interchange to be zero.

 

[woodborer]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Seeing award programs cut whilst seeing no improvement in pricing .

The RBA is basically interested in the efficiency of the payment system. They view rich reward programs as a sign that there is something wrong with the way credit cards are priced

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

The RBA is basically interested in the efficiency of the payment system. They view rich reward programs as a sign that there is something wrong with the way credit cards are priced

Absolutely correct. This is exactly the RBA's position.

Remember that they originally described the banks and card schemes as a cartel. Harsh words and nothing has changed.

A cartel cannot regulate itself and given that the RBA is in charge of the payments system in this country then their actions are reasonable.

Simply put, when banks use "interchange plus" pricing to charge their merchants (NAB for instance) it extends logically that interchange is the culprit.

Interchange plus means that the bank agrees on a flat margin on top of the transparent wholesale prices set by the schemes.

Why should a merchant subsidise your Super premium card? This card carries a 1.7% interchange plus the banks margin (say 0.30%) for a total of 2%.

If I use my scheme debit card for the same transaction then it costs $0.08?

Its exactly the same transaction with the same end result. This is the inefficiency that they refer to.

 

[Isochronous]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Absolutely correct. This is exactly the RBA's position.

Remember that they originally described the banks and card schemes as a cartel. Harsh words and nothing has changed.

A cartel cannot regulate itself and given that the RBA is in charge of the payments system in this country then their actions are reasonable.

Simply put, when banks use "interchange plus" pricing to charge their merchants (NAB for instance) it extends logically that interchange is the culprit.

Interchange plus means that the bank agrees on a flat margin on top of the transparent wholesale prices set by the schemes.

Why should a merchant subsidise your Super premium card? This card carries a 1.7% interchange plus the banks margin (say 0.30%) for a total of 2%.

If I use my scheme debit card for the same transaction then it costs $0.08?

Its exactly the same transaction with the same end result. This is the inefficiency that they refer to.

The merchant is not subsidizing my super premium card. The merchant chooses to accept whatever form of payment he wishes. Also, as a premium cardholder, I am more likely to spend big which means more sales opportunities for merchants. They can choose to not accept that type of card but then they risk turning away lucrative customers.

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

The merchant is not subsidizing my super premium card. The merchant chooses to accept whatever form of payment he wishes. Also, as a premium cardholder, I am more likely to spend big which means more sales opportunities for merchants. They can choose to not accept that type of card but then they risk turning away lucrative customers.

Spending more makes the situation worse as you cost the merchant incrementally more for the same transaction. The interchange is irrelevant. You would still spend the same amount no matter what the interchange. These transactions all go down the same pipe and have the same fixed costs.

The merchant is copping it in the neck for the privilege of you getting points or in the case of banks that don't charge merchants by interchange plus pricing, the rest of the merchant book has to be contorted to make way for this mess of interchange rates.

Here is another example:

International cards were not part of the wholesale weighted average and attract an interchange of around 2% regardless of card type. If you are a merchant in an area with a lot of international tourists you will be either;

1) Pay a much higher interchange plus price for these customers regardless of their card type by virtue of the fact that they are from overseas meaning that you have to pass on the costs to all customers.

Or

2) The rest of the banks merchant book subsidises the higher interchange and we all end up paying higher prices

Can you not see that the super premium card idea is part of the problem for the RBA?

Why should a merchant pay a premium for exactly the same transaction? The merchant cannot choose which card types to accept or not accept so they have no control due to the complexities of the interchange tables. There are over 50 different interchange rates in Australia plus certain merchant types and transaction types over ride the interchange on the card. Its a deliberately very complex and opaque system.

Even more complex is when a bank does a "BIN flip". This is where a bank just changes the card type at the back end and reclassifies the card without actually physically reissuing the card. In the real world, this means that your Gold card may actually be a super premium card just because the bank says so and you wouldn't know. How would the merchant know? Why should the merchant pay a premium for this?

Why do you think some banks never released a super premium card? The reason is because they actually did. They just didn't bother physically issuing one and did a BIN flip instaed. The BIN is the first digits of your card which identifies the bank and card type. Its how an ATM knows how to behave when you shove your card in it no matter where you are in the world. There are over 70,000 BIN's in the world

The RBA has rightly stepped in to stop this nonsense and simplify the whole system.

Unfortunately, the collateral damage is rewards programs on scheme cards which was a false business anyway given that interchange is unnecessary. The benefit will be a fairer and more equitable payments system.

Use your proprietary AMEX or get a Diners club card. Give up on the schemes. The party is over.

 

[ragingsheep]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

The merchant is not subsidizing my super premium card.

Because your super premium card is subsidised by anyone not using a super premium card such as standard credit/debit card users.

The merchant chooses to accept whatever form of payment he wishes.

No they can't. They either accept all MasterCard/Visa cards or no MasterCard/Visa cards. They can't choose to accept cards with a interchange of 0.33% but reject those with interchange rates of 1%+.

 

[get me outta here]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Is the 'party over' for a Velocity sign up bonus - anyone seen an offer recently?