RBA undecided on credit card fee cut

[kamchatsky]

RBA undecided on credit card fee cut | News | Business Spectator

An interesting part of this article mentions the following:

In conventional markets, competition generally put downward pressure on prices because players would lose market share after raising a price.
However, with card payments, there were significant pressures going the other way, Mr Edey said.
"A rise in the interchange fees charged to acquirers can allow issuers to increase their reward points to cardholders, thereby encouraging use of the card.
"In other words, a rise in price can lead to an increase, rather than a decrease, in the effective demand for the service."
This created a "natural tendency" for average interchange fees to drift upwards over time.
"Within each scheme, there are multiple cards with differing interchange fees and market share tends to shift towards those cards with the higher fees," he said.

What it means is that they should just deregulate as increased fee means more reward point offers and more demand for credit cards

 

[JohnK]

I would have thought the majority of credit card holders would be paying interest and not be interested in reward programs.

 

[Worldtraveller8888]

Now I'm not as clever as the assistant governor of the RBA, but that doesn't sound logical if fees are passed on to customers in the way of a surcharge.

I would have thought that less people would be using credit cards as fees went up - how many people have used their Visa instead of Amex because it's 1% cheaper? And not everyone is part of a rewards scheme or that drivien by rewards points.

Maybe he's referring to the days before charging for credit cards...?

WT

 

[kamchatsky]

I think in the old days when the interchange fees (borne by merchants) were high, the annual fee (borne by customers) were low, but still have reward programmes. Since RBA intervene with reducing the interchange fees, the banks had to raise annual fee to recoup the lost money.

 

[oz_mark]

Now I'm not as clever as the assistant governor of the RBA, but that doesn't sound logical if fees are passed on to customers in the way of a surcharge.

I would have thought that less people would be using credit cards as fees went up - how many people have used their Visa instead of Amex because it's 1% cheaper? And not everyone is part of a rewards scheme or that drivien by rewards points.

Enough people are driven by rewards schemes to make cards with such programs bug business. The problem the RBA looked at is that people want low fees and high rewards. The desire to make the rewards schemes more desireable has a tendancy to push fees up (to pay for the rewards). The RBA wants fees to go down.

Low fees and high rewards don't go together, long term.