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.