More silliness on interchange fees

I found this gem in the Productivity Commission’s draft report on Competition in the Australian Financial System.

The fees banks charge each other for card payments are passed on to merchants. These are, in turn, paid by consumers either as surcharges on particular purchases or more commonly in the case of smaller merchants, as higher prices overall. In practice, the fees also vary with the types of cards — a customer who pays with a premium credit card may cost the merchant a higher fee than a customer who pays with a basic ‘no frills’ card. To give merchants some control over their payments system costs, we consider that merchants should be given the capacity to select their own default route that is to be used for payments by dual network cards.
Regulation of bank interchange fees and surcharging has proved complex and there is little genuine commercial justification for interchange fees. The Payments System Board of the RBA should ban, by mid-2019, all card interchange fees as a way to lower overall costs to users.

The RBA has long pushed the line that interchange fees result in higher prices for consumers. If that were true, we would see a lot more signs like this one:

 

I took that photograph at a restaurant in Melbourne late last year. Why? Because it is the only such sign I have ever seen and is the only evidence that supports the RBA line on interchange fees.  But remember the plural of anecdote is not data.

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32 Responses to More silliness on interchange fees

  1. AC

    This moronic attack on interchange fees is driven by arrogant bureaucrats who like the Chairman’s Lounge and Business Class lounge, for which they gain access as a result of their overpaid government sinecures and business class entitlements. They wish to lock out the ordinary businessman or professional from the rarefied airs of these lounges by making it harder for people to earn frequent flyer points which permit travellers to upgrade or redeem business tickets.

  2. You’re wrong about that. Most retailers won’t put up signs like that because it’s a bit of an affront to customers. I know, as I work part time in a local hardware store (a far cry from what I used to do and I quite enjoy the change) and the store absorbs all credit card fees at the moment, but is seriously looking at changing this because of the creeping cost increases.

    And what happens if the banks etc get their way and cash becomes obsolete?

  3. v_maet

    I have seen a similar sign in an asian shop in Brisbane.
    But again, only 1 sign sighted.

    Most people seem to think it’s to promote the cash economy so the owners can dodge tax.

  4. Singleton Engineer

    @AC:
    The obvious answer to the issue of frequent flier points is to abolish them. They are a long way from “something for nothing”. The cost of such cards is ultimately a cost of doing business and/or of using a card. In either guise, they are a blight.

    @ bemused:
    If considering making cash obsolete, then the only reasonable response is to adopt that which is lowest cost, system-wide. My guess is that the cost of running the national mint, of handling and counting cash and so forth is that it dwarfs the cost of universal plastic and the downsides that attach to folding money, such as its attractiveness to tax-avoiders in the black economy and drug trade.

    The question then becomes “Why was this not done years back?”

  5. If considering making cash obsolete, then the only reasonable response is to adopt that which is lowest cost, system-wide. My guess is that the cost of running the national mint, of handling and counting cash and so forth is that it dwarfs the cost of universal plastic and the downsides that attach to folding money, such as its attractiveness to tax-avoiders in the black economy and drug trade.

    Once cash is eliminated, then so is your freedom/independence from absolute government control. Governments, banks and the world’s financiers want cash gone, for then they achieve total control over everything and every one. Ever heard of negative interest rates and government taking your (non-cash) money?

  6. Singleton Engineer

    Incidentally, I have always avoided Frequent Flier points, loyalty cards and the like. Each transaction stands alone, based on the cost to me at the time.

    I am, however, very loyal to those who I choose to do business with. I value their service, their product and their price. Is that not sufficient? Why is there some sort of bribe involved, either actual or implied?

    Thinking of bribes… who has not become aware of rorts whereby private persons become entitled to the FF points attributable to corporate or government expenditure? These can easily run into the millions, but why? I am well aware that the builders who work for me gather FF points on their hardware purchases, but at my expense. Surely government and corporate policy, whether buying or selling, should outlaw that practice, because it tends to place the interests of the points recipient, generally an employee, before those of the bill-paying entity. On ethical grounds, I refuse to support the FFP or loyalty card industry. Never have, never will, not once. At the very least, the ATO should consider FFP as personal income and tax it in the hands of the receiver.

    Vanilla cards, anybody? No points. No insurance. No lounges. No nothing. Just a means of making payments.

    By the way, whenever I fly more than a couple of hours, I fly business class – at my own tax-paid expense. I guess that demonstrates that I am stupid, in some folks’ opinion. So be it.

  7. thefrollickingmole

    Nail salon of the rellies only takes cash.
    Every sale rung through as a basic job and bugger the taxman.

    /anecdote off

  8. Pyrmonter

    Saw that and pondered the quality of the rest of the report. Thoughts? Strikes me as a bundle of lost opportunities and confused thinking.

  9. Bruce of Newcastle

    The only one which I get is the council rates bill where they charge a fee for card based payments. Which being a big bill is a chunky extra impost.

    Typical government.

  10. Louis

    …says the guy who provides his own anecdote to falsify an argument.

    Sinc doesn’t believe it, so it must not be true. Talk about literally needing to see the signs.

  11. The BigBlueCat

    If the consumer wants to use a credit card rather than using cash, then that “luxury” of receiving credit and processing the transaction (that might end up as a chargeback) needs to be funded by the credit card users, either as a direct surcharge or in the form of increased prices.

    And if the credit card attracts frequent buyer points an avails the user of benefits such as cash back, toasters, irons, iPads, cameras, etc then the charge for that customer ought the be higher (ie. higher merchant service fees based on card mix).

    It’s a free market isn’t it? If you don’t want to incur the charges, use cash or debit card (or don’t buy it at all). But if you want your frequent buyer benefits, suck it up and pay the damn fee – you’re using someone else’s money (in the interim) to pay for the stuff you’re buying.

    Now I know the card schemes make a motza on card transactions. Whoop de doo! So be inventive and work out a way where you can become a card issuer and benefit from the interchange – others are doing it.

  12. RobK

    Most auction houses i deal with charge a levy for cc use.
    I also have a dislike of third party loyalty incentives. When i was in the hospitality industry, (manual cc slips, 1980s) i first charged the fee but later just wore it. As for loyalty we issued a card with eleven boxes on it and the drink type and charged for ten. KISS.
    Much of the incentive schemes are obviously marketing ploys by a third party where you are the product.
    As to fraud, company credit cards are a soft touch for many, viz the the unions’ problems with this. It is not confined to NGOs. I recall an instance where a proprietor of a well run moderately sized vegi retail outlet took on the pickup drivers job due to illness of the driver, only to find at the servo “the usual” included extra tucker and fuel. From this it’s a short extention to have a front business to cover for other illegal trade. Crooks have time on their side to circumvent the law. It will always be so. Old fashioned policing, knowing the streets, will always be a powerful deterent (or not ). Sometimes technology just complicates things.

  13. Augustus Carp

    Businesses that levy a card fee are rather thick and don’t understand their transaction costs. They charge for one type of payment, one that costs them little, but don’t charge for the payment that has high costs: cash. Someone has to reconcile the cash, count it up and bank it. Why isn’t a surcharge levied for that expense?
    Or, to take it to absurd levels, why not charge customers to enter the premises to cover the rent those customers are benefiting from?
    Businesses would be better taking cards only and sacking the banking girl. Granted, of course, that wouldn’t suit the tax dodgers.
    Further, there’s no charge for Bpay and Paypal payments although there are costs involved (no points these days, however).

  14. RobK

    Augustus,
    I agree, especially with “tap n go” for small transactions.

  15. pbw

    Where does the Aldi approach fit into this. Aldi did (and I don’t know wheter they still do) levy a surcharge for CC usage. The ticketed price was charged for debit cards. That’s a heck of a lot of transactions.

  16. Augustus Carp

    “Aldi did (and I don’t know whether they still do) levy a surcharge for CC usage. The ticketed price was charged for debit cards. That’s a heck of a lot of transactions.”

    They levy a 0.42% surcharge for CC and debit cards.

  17. Tel

    Businesses that levy a card fee are rather thick and don’t understand their transaction costs. They charge for one type of payment, one that costs them little, but don’t charge for the payment that has high costs: cash. Someone has to reconcile the cash, count it up and bank it. Why isn’t a surcharge levied for that expense?

    Well you don’t have to shop there, but I see a lot of restaurants doing it. Either a note on the menu, or a small card at the cash register and they charge 2% as typical.

    They probably do a bank run every day because unless zero customers pay cash (never happens) they still need to balance the till. Each individual cash payer makes no difference on the margin.

    If you use EFTPOS instead you still get hit with bank fees, although usually less than 2%.

  18. Natural Instinct

    But you must have seen many signs
    MINIMUM $10 OR 50 CENT SURCHARGE
    Why?
    Because you are not paying with money.
    You are making me an unsecured creditor of a finacial institution, which may or may not pay me. Hence the risk premium

  19. Hydra

    You are making me an unsecured creditor of a finacial institution, which may or may not pay me. Hence the risk premiumc

    Nail. Head.

  20. mundi

    Augustus, cash might have high manual overheads, but has obsense tax advantages… you can just take cash out of the till, and the ATO need not know.

    This is why tradies will give you a lot more than 10% off for cash.

  21. RobK

    Regulation of bank interchange fees and surcharging has proved complex and there is little genuine commercial justification for interchange fees. 
    It’s in their DNA. Earlier, when cheques were common,
    The mongrels would charge both the issuer and receiver of the cheque an exorbitant price for a bounced cheque. I recall amounts of $35 for taking a dud cheque, the issuer got a bigger bill. I believe the regulator eventually stepped in but by then cheques weren’t so common.

  22. Roger.

    I’ve noticed some small Asian run businesses – my wife’s nail salon, my daughter’s favourite bubble tea store, barbers where we often holiday – are cash only. There are clearly advantages to them doing it, because they’ve been in business for years.

  23. RobK

    you can just take cash out of the till, and the ATO need not know.
    Except if you get too greedy. The ATO will set you up like youve never been set-up before.
    I recall talking with an underground machine miner who owned a fishing trawler and employed a professional skipper. In the off-season the miner would go to the coast and take cashies for day cruises. One day be took a lovely gentleman and his young son out for the day. They had a ball. It turned out to be amongst the worst days of his life when the ATO officer flashed his card after paying.

  24. MPH

    I regularly end up paying a fee for using credit card. Heck, even Telstra do. I don’t think I pay a higher price for goods or services but I do pay extra to pay with my choice of technology, which while a bit annoying and not transparent (ie is the merchant profiting), is fair.

  25. Nerblnob

    My barber is a sole trader who says cards save her a lot of hassle and labour over cash:
    counting & reconciling
    banking
    security against theft
    automatic statements

  26. Helen

    Two cafes in Katherine do it, The Coffee Club – it is 50 cents or 10% of all card transactions, (which ever is greater) or the stated price for cash. The other place has gone broke.

  27. Helen

    Two cafes in Katherine do it, The Coffee Club – it is 50 cents or a percentage (2%?) of all card transactions, (which ever is greater) or the stated price for cash. The other place has gone broke.

  28. OneWorldGovernment

    The best thing that the non income earning foul “public servants’ did was to wipe out FBT.

    Of course the foul scum had it inbuilt to their pay rates.

  29. Fat Tony

    Amex (American Express?) do not appear to be too popular.

    Anyone know the reason for this?

  30. Diogenes

    Lets see more anecdote…
    Webjet charges a levy for CC, as does Jetstar, the school tuck shop, the local newsagent (used to have a minimum, but who since getting a tapngo cardreader has put a ‘card protector’ over the tapngo to stop it reading tapngo cards, and charges a %age ).

    Amex (American Express?) do not appear to be too popular.
    Anyone know the reason for this?

    Charges highest fees & is slowest payer.

  31. Motelier

    Here is what MrsM and I have done.

    Negotiate with any trader for a discount for immediate cash paynent for goods and services received. These discounts can be up to 20% of the good purchased. (Trader hint : No risk for the supplier. They do understand this feature.)

    Trade with a sign giving a 5% discount for immediate cash payment.

    Run a proper petty cash system.

    BTW we have been audited 3 times by the ATO, once by the above mention ATO scam of staying with us paying cash at checkin. Passed each time.

    Each system of payment has advantages, it is up to the trader to find out what works for them.

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