As the Reserve Bank of Australia (RBA) delves into an extensive review of the credit card surcharging system, Mastercard and Commonwealth Bank are making a bold move that could benefit card users.
Mastercard’s submission to the RBA, as reported by Yahoo Finance, calls for a sweeping reform, saying, ‘After 20 years, the landscape desperately needs a shake-up.’
‘Mastercard supports a ban on surcharging across credit and debit on designated schemes as the current surcharging practices are not resulting in market efficiencies.’
They argued that the current surcharging practices are not only inefficient but also fail to foster a competitive market, with merchants not seeking out the best payment service provider (PSP) deals.
Labor has proposed abolishing surcharges on debit cards, aiming to implement this policy by the start of next year. However, Mastercard insists that this is only part of the solution, advocating for a ban on both debit and credit card surcharges.
‘Surcharging (and especially excessive surcharging) has a negative impact for all involved, but it is vital that any change in surcharging policy by the RBA needs to be equally applied to both debit and credit,’ Mastercard stated in its RBA submission.
‘If surcharging remains on credit, there runs a risk of consumers paying via credit and absorbing the entire cost of payments by the surcharge encompassing other add-on costs, effectively subsidising other payment methods.’
The Commonwealth Bank is also reportedly in favour of a total surcharge ban, aligning Australia with practices in Europe and the UK.
The Australian Financial Review notes that the Big Four bank is concerned that if only debit surcharges are outlawed, merchants might seek to recoup costs through credit card surcharges, still impacting consumers.
Mastercard’s vision includes the establishment of a comparison system, allowing merchants to choose the most cost-effective PSP and bank, which could lead to a more competitive landscape, with PSPs vying to offer lower rates to merchants, and ultimately benefit consumers.
Electronic funds transfer at point of sale (EFTPOS) transactions may incur a surcharge as low as 0.5%, while credit transactions can range from 1.0 to 1.5%. Newer financial technology brands may charge even higher rates.
A comparison system could reportedly help level the playing field, especially for small businesses, which the Independent Payments Forum (IPF) says currently pay $1.7 billion more in payment fees than larger businesses.
The RBA’s introduction of surcharging in 2003 aimed to curb Australians’ reliance on credit cards. While debit spending has indeed surpassed credit, the rise of digital payments means consumers are frequently hit with surcharges.
National Australia Bank (NBA) boss Andrew Irvine suggests that the original rationale for surcharging may no longer be relevant, calling for a reassessment of its purpose.
‘It is possible that surcharging was warranted over 20 years ago, but I think it [is right or necessary for] us to ask whether it still serves its purpose,’ he said.
The debate over the cost of surcharging is ongoing, with estimates ranging from $400 million to $4 billion annually. However, analysis of RBA data by the ABC suggests that the figure is closer to $960 million a year.
As we await the RBA’s report to be released later this year, the push by Mastercard and Commonwealth Bank could signal a significant win for consumers.
What do you think about the proposed ban on card surcharges? Have you been affected by these fees, and how much do you think it has cost you over the years? Share your thoughts and experiences in the comments below.
Also read: How to ensure your credit card is the right one for you
