In a move that could change the best way Australians pay for on a regular basis purchases, the federal government is preparing to ban corporations from charging extra fees on debit card transactions.
This plan, pending consideration by Reserve Bank of Australia (RBA)guarantees to place money back into consumers’ pockets.
The RBA, which is accepting applications until December, published its first consultation paper on Tuesday, coinciding with a joint statement by Prime Minister Anthony Albanese and Treasurer Jim Chalmers.
But as with all significant policy change, it’s value taking a closer look to see what it really means for all of us.
How much can we actually save?
Based on RBA datathe potential savings are enormous – as much as $500 million a year if debit card surcharges are banned.
And if the federal government goes a step further and includes credit card transaction fees in the ban, those savings could be huge $1 billion annually.
While these numbers sound impressive, once you break them down, the savings per cardholder can be roughly $140 annually.
It’s not a life-changing amount, but for frequent customers or those making larger purchases, it will possibly add up.
Of course, not everyone will profit equally from this. Those who shop smaller may not notice the difference.
How is Australia doing in the world?
RBA data shows that Australians pay more in trade fees than Europeans, but lower than US consumers.
These fees are fees that corporations pay for accepting card payments and are passed on to us in the shape of surcharges.
The proposed ban on debit card surcharges is taking center stage in the worldwide regulatory landscape. European Union, Great Britain and Malaysia have implemented comprehensive surcharge bans for many debit and credit card transactions.
However, in the US and Canada, corporations can still charge fees for using a credit card, although additional fees for debit cards usually are not allowed.
A salesman’s perspective
While the surcharge ban appears to be a clear win for consumers, it can be crucial to contemplate its impact on sellers, especially small businesses. The reality isn’t that every one merchants are equal on the subject of card payment fees.
In Australia, there may be a significant discrepancy between the fees paid by large and small sellers. In fact, RBA data shows that small corporations pay about 3 times as much in fees as larger corporations.
It all is dependent upon bargaining power. Larger corporations can negotiate higher deals on fees. This difference is primarily because of the power of larger merchants to charge favorable wholesale fees for processing card transactions.
For small businesses, the price of card acceptance can range from lower than 1% to greater than 2% of the transaction value, which might eat into profits, especially for those working with low margins.
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While the ban may look like excellent news for consumers, there continues to be a have to fix larger problems in the payment system. Innovations like “lowest cost routing”, which allows businesses to process transactions at the bottom possible cost, could potentially help level the playing field.
How can corporations exploit legal loopholes?
If payment costs are passed on entirely to sellers, they’ll find ways to recoup those expenses other measures. We have seen this in other countries which have abolished subsidies. Some potential strategies include
- barely increasing overall prices to cover lost revenue from ancillary fees
- introducing or increasing minimum purchase requirements for card payments
- introducing recent “service” or “convenience” fees for all transactions or increasing weekend and holiday surcharges.
Most of those tactics have been around for a while. The challenge for regulators can be to watch and reply to any recent practices that emerge in response to the brand new regulations.
Credit cards: the elephant in the room
While the debit card surcharge ban is a step in the fitting direction, it raises an obvious query: why not extend it to bank cards?
The RBA’s consultation paper proposed the choice of banning credit and debit card surcharges. The answer lies in the complex web of interchange fees and acceptance costs related to credit card transactions.
Credit card transactions cost merchants more due to additional services and rewards programs offered by credit card corporations.
A ban on surcharges could potentially result in sellers raising their base prices to cover these costs. In practice, this will likely result in users of cheaper payment methods subsidizing individuals who select premium cards.
The lack of additional fees could also reduce competitive pressure on payment card networks to manage their fees, which could potentially result in higher costs in the long term.
Some countries have managed to ban credit card surcharges, but they sometimes have stricter interchange fee rules than Australia.
As policymakers grapple with this complex issue, they have to weigh the advantages of ease of use for consumers against the risks of distorting market signals and potentially increasing costs for each sellers and consumers.