Interchange fees for credit card transactions in Australia are to be virtually halved following tough action by the Reserve Bank of Australia (central bank) and the failure of an appeal by Visa, MasterCard and BankCard in the federal court.

From October 31, the card associations have to implement new

interchange rates that will reduce from about 0.95% to about 0.5% and

less.

Visa and MasterCard fiercely opposed the Reserve Bank initiative, which

threatens the principle of interchange fees as it exists at present in

markets around the world.

In Europe, the European Commission has taken some steps to reduce fees

in its ruling on Visa’s cross-border interchange regime and the UK’s

Office of Fair Trading (OFT) is investigating MasterCard’s fee

structure, which is reported at 1.1%.

The OFT is due to report in the new year but in September MasterCard

issued a stiff rebuttal to OFT’s initial proposals that interchange is

a tax on retailers and is uncompetitive.

In Australia, the Reserve Bank has been extremely proactive in its approach.

“The Reserve Bank’s reforms – which allow merchants to recover the

costs of accepting credit cards, determine objective cost-based

benchmarks for setting interchange fees and liberalise access to the

schemes – are designed to increase competition and efficiency in

Australia’s payments system,” said the bank.

The Reserve Bank is understood to have proposed the following rates:

electronic rate – Visa (43-45 basis points), MasterCard (49bp),

BankCard (49bp); standard, recurring and card not present rate – Visa

(53-55bp), Mastercard (65bp), BankCard (49bp).

Visa, which has higher volumes, has an average at less than 50bp while

Mastercard has a weighted average of 58bp. BankCard has a single

interchange rate of 49bp.

The new Visa interchange levels are also expected to apply to Visa

debit transactions, at least on an interim basis, although Visa Debit

may still be subject to further discussion between Visa, Visa Debit

issuers and the Reserve Bank.

Reacting to the changes, the Commonwealth Bank, one of the big four

banks in Australia, said it would pass on the reduction in interchange

charges on credit cards to merchants.

“The lower interchange fees set by Visa, MasterCard and BankCard is

good news for the Commonwealth Bank’s 118,000 merchants, who should

expect lower credit merchant service fees from November 1,” said

executive general manager Bruce Munro.

For bankers, the impact of the reduction of interchange fees is likely

to lead to a restructure of the interchange model worldwide.

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