ACAPMA first started raising strong industry concerns about the fairness and transparency of merchant fees charged by banks in 2016, when ‘Tap N Go’ became a mainstream payment mechanism for Australian consumers.
Subsequent advocacy between 2016 and 2019, in partnership with other industry organizations and the Council of Small Business Organisations of Australia (COSBOA), led to some concessions being introduced around Least Cost Routing (LCR) in late 2018 and early 2019. However, these concessions proved largely ineffective as banks used ‘blended rate’ merchant fee products to make the unit cost of electronic payments even more opaque than they already were.
Despite acknowledging significant issues with how merchant fees were charged to retailers, a 2019 review of the Merchant Fee Regulation by the Reserve Bank of Australia (RBA) failed to deliver any tangible improvements – this despite strong industry calls for increased transparency and more meaningful measures for LCR.
“Five years on, and with the vast majority of Australia’s consumers now paying for their products and services using electronic payments, the lack of transparency and commercial justification for the quantum of merchant fees charged by the banks, is an even bigger concern for our industry,” said ACAPMA CEO Mark McKenzie.
The cost paid by retailers to Australia’s banks for the privilege of processing electronic transactions is now more than $4.5 billion per year. These costs were revealed during a recent Parliamentary Inquiry and have led some politicians to call for the abolition of credit card surcharging by retailers – as is already the case in Europe and the UK – given continued consumer concerns about the rising cost of living in Australia.
“Political calls for retailers to cease the practice of payment surcharging are overly simplistic – and they ignore the real culprit for these fees,” said ACAPMA CEO Mark McKenzie.
“Merchant fees are an increasingly significant cost imposed on retailers by the big banks – they cannot simply be ‘absorbed’ by retailers. If the surcharge were to be removed, then retailers would be forced to reassess the price of their products and services, with a view to recovering these business costs from consumers,” said Mark.
The current itemization of surcharges by retailers at least makes it apparent to the customer that the transaction fee is being levied by the banks – not the retailer. Any change risks making these costs invisible and effectively lets the banks ‘off the hook’.
“The real issue is the lack of transparency in the pricing and architecture of the merchant fee products administered by Australia’s major banks,” said Mark.
“Any consideration of changes to surcharging must first seek to address the longstanding concerns about the behavior of Australia’s big banks and the need for greater transparency in the charges levied by these banks on Australian retailers,” said Mark.
“This has been an issue that has been ignored by successive governments for nearly a decade. It is time to tackle the issue head-on,” added Mark.
Within this context, the announcement by the Reserve Bank of Australia (RBA) this week that it would expedite its review of Merchant Fees and Surcharges before the end of the year is a welcome development.
It is hoped that this next review is undertaken with more rigor than the RBA’s 2019 Review (of the Retail Payment Regulation). It is also hoped that it results in a requirement for meaningful changes that require the Banks to provide bona fide LCR offerings to Australian retailers.
ACAPMA will be ready to respond to this next RBA review when the draft Consultation Paper is released later this year.
“Given that the nature of our concerns with the current practices hasn’t changed since the last review five years ago, we will simply dust off our 2019 submission and press harder for real change this time,” concluded Mark.
ACAPMA
