Home Credit RBA curbs credit card surcharges: What does this mean for consumers?

RBA curbs credit card surcharges: What does this mean for consumers?

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RBA curbs credit card surcharges

Remember those annoying surcharges that you shoulder when you use your credit cards on expenses like taxi fares and airline tickets? They’ve gotten the boot. The Reserve Bank of Australia (RBA) recently made reforms to its standards in merchant surcharging, allowing credit card companies to limit add-on costs.

This time, credit card companies can reduce surcharges to the actual costs that merchants spend to process transactions. According to the RBA, the merchant service fees have gone down to 0.8 per cent of the transaction value for Visa and MasterCard. For Diners Club and American Express, the decrease was at a combined average of 2.4 to 1.8 per cent.

Transportation surcharges

At first glance, these reductions may not seem like much, but when compared to the surcharges imposed by merchants such as airlines and taxis, you’ll see that the difference is quite dramatic. Choice head of campaigns Matt Levey said that while $70 flights from Sydney to Melbourne may seem cheap, its $17 credit card surcharge is a whopping 24 per cent. Taxicabs, in contrast, impose a 10 per cent fee on its fares.

When it was first introduced, the credit card surcharges were intended as cost recovery fees but now, it has evolved as a means to raise revenue. Now that the fees have been curbed, consumers will save millions of dollars in saved surcharges—that is, of course, if credit card companies are to succeed in limiting these add-ons.

Taking the first step

Fortunately, someone already made the first step: after RBA’s decision, Visa restricted retailers in the country from imposing the extra charges, becoming the first credit card company to do so. EFTPOS provider Tyro Payments said consumers will save hundreds of millions of dollars in excessive fees if credit card companies like Diners Club and MasterCard followed Visa’s lead.

Not long after, American Express updated its terms and conditions to reflect RBA’s reforms.

Tyro Payments chief executive Jost Stollman estimates that limiting the surcharges will save Australian consumers approximately $350 million a year.

Stollman also believes that merchants aren’t the only one at fault since banks share the blame by charging excessive fees on small retailers. As a result, the costs are then passed on to consumers.

Few percentage points

All things considered, while the savings will accumulate, individual consumers probably won’t be facing a massive reduction since we’re looking at only a few percentage points (outside taxicabs and airlines). Furthermore, Tyro Payments said only 36 per cent of businesses in Australia (around 100,000 companies) impose a credit card surcharge. This means 64 per cent of all businesses here (around 200,000 companies) are following the rules.

In other words, your wallet will hardly feel it, unless you’re buying airline tickets or paying for cab fare using your credit card.

Some companies have been quick to comply: low-cost airline Jetstar, for instance, said it already got rid of its credit card surcharge. Others, however, are resisting. Flag carrier Qantas said that its income from surcharges does not exceed its costs. Cabcharge chief executive Reg Kermode, on the other hand, said that he doesn’t think the RBA could compel the company to follow its decision.

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