Urbis Think Tank
Changes to credit card surcharge rules could impact on retailers (and banks)
From 2003 onwards, merchants have been able to charge surcharges on credit card transactions to consumers, and from 2007 they have been able to charge surcharges on Visa debit transactions. The Reserve Bank has found that the practice of charging a surcharge by retailers has been increasing, despite the fact that consumers are actively seeking to avoid the surcharges by using a different payment method, or going to another store.
The increases in surcharging have been a concern to the Reserve Bank as a result of the increasing practice of “excessive surcharging” above the cost of the transaction to the retailer.
The Reserve Bank has also been concerned with the practice of blended surcharging. Retailers pay a different merchant services fee for premium cards such as American Express, Diners Club and platinum cards than they do for standard or gold Visa or Mastercards.
Changes from 1 January 2013
As a result of this analysis, the Payments System Board of the Reserve Bank decided to vary the standards relating to merchant surcharging on credit and scheme debit cards. The variation allows card scheme rules to limit surcharges to the reasonable cost of card acceptance. The variation continues to ensure that merchants can fully recover their card acceptance costs.
The Bank intends that its variation will improve price signals by enabling a card scheme to address cases where merchants are clearly surcharging at a higher level than is justified for acceptance of its card products.
The varied Standards will come into force on 1 January 2013.
It will be interesting to see how retailers respond to these changes. From the chart shown above, this may have an impact on net profits, as retailers will have to reduce their average surcharge levels. However, the issue around blended surcharging may lead to greater transparency with differential surcharges applied to AMEX, and also to platinum cards.
If this does occur, platinum cards that are issued for higher credit limits to higher value customers may become less popular among consumers, which could lead to further shifts in the landscape.
For further details read the Reserve Bank’s media release and full report here.