Lower Bank interchange fees to 'enhance' credit card earn rates

[albyd]

Amex velocity platinum still offering 50k signup (though been as high as 100k in the last year). Suspect these bonuses will be the only way to get a good points haul with little spend going forward. Looks like retail spend will be increasingly out as these 'reforms' bite harder over the next year.
Unless of course everyone applies for a Diners Club card and all of a sudden merchants get excited about accepting it and Amex.

 

[get me outta here]

Sadly, I've only just closed that one so am locked out of applying. It was 110,000 when I got it plus the referrals made it an excellent card.

Amex velocity platinum still offering 50k signup (though been as high as 100k in the last year). Suspect these bonuses will be the only way to get a good points haul with little spend going forward. Looks like retail spend will be increasingly out as these 'reforms' bite harder over the next year.
Unless of course everyone applies for a Diners Club card and all of a sudden merchants get excited about accepting it and Amex.

 

[serfty]

Thankyou nutcase for some very interesting commentary - it has made things much clearer to me.

I do appreciate it very much.

 

[Nutcase]

Thankyou nutcase for some very interesting commentary - it has made things much clearer to me.

I do appreciate it very much.

You're welcome Serfty. I know that what I say is usually contentious and delivered without a filter however I find it best this way in order to get the message across and cut through as quickly as possible. 25 years in corporate banking and dealing with psychopaths does that to you.

Most of the push back that I experience is from people not thinking critically about the numbers and the reality of the situation but instead thinking emotionally about why they cant get their points any more and why everything is so unfair. Its best to accept these inevitabilities and look for alternatives rather than wasting energy on fighting a battle that cannot be won.

At the end of the day, there is a solution to all this which is simple. Get a proprietary AMEX or Diners and a cheap scheme card from whomever has the best deal or my personal favourite which is the Diners Club/MCW QF card combo and suck up the notoriously bad Citibank service. The best way to deal with the bad Citibank/Diners service is to escalate your issues in writing to the country head of Diners. Easy! That persons name is always on your welcome letter. Give them a call or drop them an email when things get bumpy and you'll get a resolution in 48 hours. You'll find them to be easily contactable and quick to fix problems. Also pinging them on Linkedin doesn't hurt either.

Beyond that, I think that Qantas should buy the AU Diners Club franchise from Citi (or cut an exclusive deal with them) and issue their own card (as well as launching Discover card) and ditch AMEX completely. Diners also own the "Carte Blanche" brand which I would reintroduce and co-brand with QF status much like Ansett golden wing had with Diners 100 years ago.

The schemes (Visa and Mastercard) are finished now for QF FF points considering that interchange is so heavily regulated and reduced.

A closed loop system (Diners and Amex) without regulated interchange is the obvious solution.

That prepaid QF card issued by Heritage was always a dog with fleas. Im glad that will have a bullet put in it now too.

 

[Mr_Orange]

my personal favourite which is the Diners Club/MCW QF card combo

How do you find acceptance rates for Diners compared with Amex?

 

[Nutcase]

How do you find acceptance rates for Diners compared with Amex?

This will be a long answer to a short question.

Diners Club was never meant to be a card to pay for everything. Its primary market here is "The Australian Business traveller". In that context, you're pretty much covered.

All Airlines (either directly or through other sources), Major Hotels, Car rental companies, Petrol stations, Taxi's and decent restaurants are all covered. Keep in mind that Diners Club has excellent expense reporting which is ATO compliant for GST straight off the bat. Given that its a closed loop the enhanced data that is provided is excellent. The business/corporate product with the travel expense product is world class.

Beyond that, The major department stores (David Jones & Myer) as well as the major supermarkets (Woolworths and Coles), major petrol stations & officeworks are also covered. BIGW, Kmart and Target are all merchants that accept the card.

So you can buy groceries, Clothe yourself, eat at good restaurants, fill up your car and buy stationery and pay your Telstra bill. Not too bad.

There are holes and that is usually with Utilities and small merchants. There are plans to plug that however its a slow painful process and always has been. For this, there is the companion Mastercard.

Overseas, its a mixed bag. For instance in Japan, JCB will carry a Diners club transaction. UnionPay will carry a Diners transaction in China. Ecuador is its strongest market and they have no presence in Indonesia or Turkey. Weird heh?

Given that overseas transactions on your Australian based Mastercard or Visa are not impacted by the RBA Interchange enhancements then its safe to say that those cards will still earn decent FF points albeit with a 3-4% foreign transaction fee.

 

[Mr_Orange]

This will be a long answer to a short question.

Diners Club was never meant to be a card to pay for everything. Its primary market here is "The Australian Business traveller". In that context, you're pretty much covered.

All Airlines (either directly or through other sources), Major Hotels, Car rental companies, Petrol stations, Taxi's and decent restaurants are all covered. Keep in mind that Diners Club has excellent expense reporting which is ATO compliant for GST straight off the bat. Given that its a closed loop the enhanced data that is provided is excellent. The business/corporate product with the travel expense product is world class.

Beyond that, The major department stores (David Jones & Myer) as well as the major supermarkets (Woolworths and Coles), major petrol stations & officeworks are also covered. BIGW, Kmart and Target are all merchants that accept the card.

So you can buy groceries, Clothe yourself, eat at good restaurants, fill up your car and buy stationery and pay your Telstra bill. Not too bad.

There are holes and that is usually with Utilities and small merchants. There are plans to plug that however its a slow painful process and always has been. For this, there is the companion Mastercard.

Overseas, its a mixed bag. For instance in Japan, JCB will carry a Diners club transaction. UnionPay will carry a Diners transaction in China. Ecuador is its strongest market and they have no presence in Indonesia or Turkey. Weird heh?

Given that overseas transactions on your Australian based Mastercard or Visa are not impacted by the RBA Interchange enhancements then its safe to say that those cards will still earn decent FF points albeit with a 3-4% foreign transaction fee.

Thanks. The long answer is appreciated. Essentially, acceptance appears to be the same as Amex then. That combo does seem good value for a $260 annual fee and a MC that still earns 1pt/$.

Overseas spend doesn't worry me as I will stick with a Bankwest Platinum card of some description (with or without rewards) that doesn't charge a forex fee.

 

[Nutcase]

Thanks. The long answer is appreciated. Essentially, acceptance appears to be the same as Amex then. That combo does seem good value for a $260 annual fee and a MC that still earns 1pt/$.

Overseas spend doesn't worry me as I will stick with a Bankwest Platinum card of some description (with or without rewards) that doesn't charge a forex fee.

I think its wise to have a seperate card for overseas vs domestic spending. It's easy to get focussed on looking for the ultimate card product at the lowest possible price which simply does not exist in one product.

I like the Diners Club/MCW combination for domestic spending providing you know what you are getting yourself in to and you know where to use it. Most humans are creatures of habit any way. They buy the same groceries every week from the same supermarket, fill up at the same petrol station and eat at the same restaurants unless they are travelling.

As long as you "stick to your lane" then you will be fine. There is also a lot of status anxiety around what card type you have which is a mind set issue that needs to be overcome as it is largely irrelevant except for some benefits like travel insurance and lounge entry and a prettier card albeit for a very high cost.

I dont think any card in the market provides a reward that is worth a 3%-4$ forex fee. Perhaps at 2 points per dollar spent but even then its marginal.

So the best card portfolio would look thus;

DC/MCW combination for domestic spend
BWA Platinum MCW for overseas spend
Citibank plus transaction account for cash withdrawals from ATM's and other card spend

This is what I have and it works perfectly. Diners Club being a charge card does not have a negative impact on my borrowing capacity as it is a charge card and has no hard limit per se. The only fees I pay are for non-citi ATM withdrawals and the Diners Club annual fee.

 

[Pleb Status]

https://www.theguardian.com/busines...canada-to-stop-accepting-visa-cards-high-fees

Interesting article from Canada on interchange fees. Maybe Australia is leading the way again (we just need to ban surcharges again).

 

[albyd]

I'd have thought Walmart would have built its own switch much like Coles & Woolies have in Australia to overcome this issue.
Interesting to see how this pans out - I imagine Walmart is one of their biggest merchants & Visa will have to compromise not to get shut out.

 

[theevilmuppet]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Exactly how are they incompetent?

Interchange regulation is not just an Australian issue. It is a red hot issue in the payments space globally.

Just because your rewards are being reduced does not make the RBA incompetent. That argument is post hoc ergo propter hoc.

The RBA has been held to ransom by the schemes and Amex who have played games with interchange since this all started in 2001. The RBA has asked nicely, repeatedly for the schemes, Amex and the banks to self regulate and they have misbehaved. The RBA has also stated on numerous occasions that the don't want to be the policeman for this however there is no choice.

The "wholesale weighted average" was a compromise and excludes major merchants, overseas cards and other card types.

The RBA has always wanted interchange to be zero.

I didn't reference my rewards being reduced - I was making a general statement.

Interchange fees are one element in the cost of payment acceptance. Observe that the standard published by the RBA:

- Frames Cost of Acceptance in terms of fees charged by Acquirers and Payment Service Providers - not interchange rates.
- Does not reference scheme or industry compliance costs (such as PCI DSS compliance, as one example) with regard to determining Cost of Acceptance.

Given the margins in Acquiring are extremely thin in Australian banks and interchange fees are only one component in determining that MSF, the downward pressure on prices the RBA is claiming to facilitate will not eventuate. The reduction in revenue to card issuers and reward schemes is a real consequence of these changes and is very likely to result in staff reductions at the companies involved.

Various payment aggregators (PayPal, Stripe and PIN to name a few) have arrangements with their acquirers that see them paying MSF rates well below 0.5% in many instances - these changes simply won't effect the thousands of merchants who use these services, with the only means of cost reduction for payment acceptance in these cases being a change of Payment Service Provider which is a non-trivial cost to any merchant.

Given the RBA has made regulatory changes in this area before, the stated basis for these additional changes is extremely weak at best. The idea that rewarding customers for usage of a particular premium product set indicates that there is a system-wide problem is an extremely poor argument.

As the RBA is tasks with regulating Australian payment systems, the continued leeway given to ePAL and complete inaction on fees related to Direct Debit Dishonors shows that said tasking needs a review at the very least.

 

[basso]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I Given the RBA has made regulatory changes in this area before, the stated basis for these additional changes is extremely weak at best. The idea that rewarding customers for usage of a particular premium product set indicates that there is a system-wide problem is an extremely poor argument.

Why is it an extermely poor argument? Why should yoy get rewards for making a payment through the use of a premium product?

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Why is it an extermely poor argument? Why should yoy get rewards for making a payment through the use of a premium product?

I have read and re read the post that you responded to and am still meditating on it as I could write an essay in response which I wont.

Here is my line.

If you took interchange away - made it zero - what would happen besides you having your points taken away from you?

What value does it add? Who benefits?

Interchange is only a fee that issuing and acquiring banks charge each other. On top of this are scheme fees. Visa and Mastercard get these. Interchange is a fee between banks in a cartel environment. This is also why the issuing and acquiring businesses at banks are separated.

As for the rest of the post. ePal also runs traffic on the ATM network and Paypal is a seperate company now in bed with ePal. NPP (new Payments platform) due next year will take care of the direct debit situation and make transfers between accounts at different institutions instantaneous.

Interchange funds rewards programs and is unnecessary as it does not contribute to any innovation, technology nothing. It adds no value and we all pay for it through unnecessarily high fees.

When you look at the entire cost of accepting a card for a merchant, most of it is interchange.

Scheme fees are around 0.05% to 0.10%
Margin for the bank around 0.15 to 0.40%
Interchange up to 0.80%

Total around 1.00%

 

[theevilmuppet]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Why is it an extermely poor argument? Why should yoy get rewards for making a payment through the use of a premium product?

I didn't say anything about the appropriateness or otherwise of the arrangement.

The statement has been made by the RBA that reward programs being in place indicates that the cost model is incorrect. Bank accounts are available that offer reward points and payment products that offer percentage rebates are available - surely those should be similarly classed if that argument is to be given any serious weight.

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I didn't say anything about the appropriateness or otherwise of the arrangement.

The statement has been made by the RBA that reward programs being in place indicates that the cost model is incorrect. Bank accounts are available that offer reward points and payment products that offer percentage rebates are available - surely those should be similarly classed if that argument is to be given any serious weight.

The RBA is correct.

The Bank account products pay reward points based on different behaviours and are not funded out of interchange revenue.

The savings accounts pay points instead of interest and the BWA product pays points on a per transaction basis not a dollar spend basis.

 

[theevilmuppet]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

I have read and re read the post that you responded to and am still meditating on it as I could write an essay in response which I wont.

Here is my line.

If you took interchange away - made it zero - what would happen besides you having your points taken away from you?

What value does it add? Who benefits?

Interchange is only a fee that issuing and acquiring banks charge each other. On top of this are scheme fees. Visa and Mastercard get these. Interchange is a fee between banks in a cartel environment. This is also why the issuing and acquiring businesses at banks are separated.

As for the rest of the post. ePal also runs traffic on the ATM network and Paypal is a seperate company now in bed with ePal. NPP (new Payments platform) due next year will take care of the direct debit situation and make transfers between accounts at different institutions instantaneous.

Interchange funds rewards programs and is unnecessary as it does not contribute to any innovation, technology nothing. It adds no value and we all pay for it through unnecessarily high fees.

When you look at the entire cost of accepting a card for a merchant, most of it is interchange.

Scheme fees are around 0.05% to 0.10%
Margin for the bank around 0.15 to 0.40%
Interchange up to 0.80%

Total around 1.00%

Please stop referencing my points - I have not referenced them myself and your continued referencing of them takes away from the discussion.

Your assessment of interchange rates is overly general and does not take into account the risk modelling that acquirers actually perform - the rate levied on merchants is not uniform. Any merchant seeking to accept cards bearing an American Express mark is obligated to engage with American Express - the fee structure will either differentiate bank-issued American Express cards from closed-loop cards (thus complicating the cost of payment acceptance for merchants and not providing clear price signaling for merchants or consumers) or will provide a single rate for American Express acceptance (thus not providing any clarity for merchants or consumers).

Regarding the idea of the removal of interchange fees, what does the complete removal of said fees achieve? Should interchange be zero, how exactly will the card holder protections, scheme compliance, PCI DSS compliance and network connectivity be funded?

Your assessment of card acceptance cost does not assign any cost to engagement with Payment Service Providers, management of PCI DSS compliance, segregation of card holder data from other business data, fraud management, chargeback handling and many other factors.

The removal of interchange fees is an interesting idea - would said removal increase the cost for those using said payment methods or remove them from the market entirely?

You've addressed the NPP - said platform is very far from being delivered. SPS have made presentations regarding this platform, as they have for contactless-payments on ePAL's platform with zero market impact and no market outcome.

Your statement that PayPal is a separate company and "in bed" with ePAL does not at all address the issue being discussed. ePAL have not afforded their customers any new products in over 20 years and are completely irrelevant and their involvement in the payments market is only afforded due to the interests of ePAL's owners.

The view that interchange funds reward programs solely is not at all appreciative of the costs of handling payment systems and payments in general.

Additionally, your statement of acceptance cost being based on MSF does not consider card-not-present costs, costs for merchants to engage with Payment Service Providers, the cost to differentiate card types and acquire BIN listings (specified by the RBA as a means of determining card type but not provided by any acquirer or scheme) or to accept card not present payments.

 

[Nutcase]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Please stop referencing my points - I have not referenced them myself and your continued referencing of them takes away from the discussion.

Your assessment of interchange rates is overly general and does not take into account the risk modelling that acquirers actually perform - the rate levied on merchants is not uniform. Any merchant seeking to accept cards bearing an American Express mark is obligated to engage with American Express - the fee structure will either differentiate bank-issued American Express cards from closed-loop cards (thus complicating the cost of payment acceptance for merchants and not providing clear price signaling for merchants or consumers) or will provide a single rate for American Express acceptance (thus not providing any clarity for merchants or consumers).

Regarding the idea of the removal of interchange fees, what does the complete removal of said fees achieve? Should interchange be zero, how exactly will the card holder protections, scheme compliance, PCI DSS compliance and network connectivity be funded?

Your assessment of card acceptance cost does not assign any cost to engagement with Payment Service Providers, management of PCI DSS compliance, segregation of card holder data from other business data, fraud management, chargeback handling and many other factors.

The removal of interchange fees is an interesting idea - would said removal increase the cost for those using said payment methods or remove them from the market entirely?

You've addressed the NPP - said platform is very far from being delivered. SPS have made presentations regarding this platform, as they have for contactless-payments on ePAL's platform with zero market impact and no market outcome.

Your statement that PayPal is a separate company and "in bed" with ePAL does not at all address the issue being discussed. ePAL have not afforded their customers any new products in over 20 years and are completely irrelevant and their involvement in the payments market is only afforded due to the interests of ePAL's owners.

The view that interchange funds reward programs solely is not at all appreciative of the costs of handling payment systems and payments in general.

Additionally, your statement of acceptance cost being based on MSF does not consider card-not-present costs, costs for merchants to engage with Payment Service Providers, the cost to differentiate card types and acquire BIN listings (specified by the RBA as a means of determining card type but not provided by any acquirer or scheme) or to accept card not present payments.

1) Im not sure what "please stop referencing my points" is about. Why cant I reference your points if they are relevant?
2) The rate levied on merchants is indeed uniform NAB charges merchants on an "interchange plus" basis. This means that there is a flat rate levied above the interchange. The interchange floats, the "plus" levied does not.
3) American Express is not part of a tri-party scheme and all transactions are "on-us". Merchants wishing to engage with AMEX do so separately. The RBA's argument is that the companion cards are just a way of side stepping the rules as the "issuing" bank runs the credit facility and owns the customer relationship. The transactions just run on the AMEX network for no other reason than to pay for rewards.
4) Interchange has no bearing on PCI DSS, compliance etc as there are "scheme fees" which the schemes get. The banks get interchange not the schemes. PCI DSS is the cost of processing a transaction and the cost of doing business.
5) Charge backs, risk etc are costs incurred by cards businesses. There are other fee buckets to consider. Interest on revolve, ancillary fees, annual fees. These fee buckets are the places where these costs are extracted from, not interchange.
6) The RBA has been clear that their position is a zero interchange environment since the early 2000's when they called this a cartel which I personally agree with.
7) ePal has indeed been a disappointment. Their new payments hub has achieved little. They were unable to launch an online product hence their agreement with paypal. They are left as a bit player supported by supermarkets and some interests from the banks
8) The issue with contactless payments is that the default is always "CR" and does not allow the customer to be able to choose the account. ePal do have contactless product for "CHQ and SAV" however it has gone no where.
9) ePay is still alive because the RBA wants some competition. If we didn't have ePal then the schemes would run riot which they basically do any way. At least with some choice and education, merchants have choice and can ask customers to pay with a cheaper card or surcharge accordingly

Your last 2 paragraphs perplex me. Interchange does indeed fund rewards programs. It has to. The simply explanation for this is that the banks move every time interchange is fiddled with. Super premium cards were introduced with the specific goal of grabbing that revenue. There is no other reason for them.

As for MSF and card not present costs etc the costs to differentiate card types - this paragraph does not make a lot of sense to me.

Card not present transactions still incur interchange and the same rules (basically) apply to these transactions. Engagement of payment service providers are a cost to a business and not anything to do with interchange.

BIN's identify the card type and the bank. There are over 70,000 however the issuing bank can do a "bin flip" which means that the issuing bank can determine what kind of card you have in your wallet without reissuing it. By way of example: Your Platinum card can be determined to be "super premium" by the issuing bank without issuing a super premium card. You would never know and neither would the merchant. This is opaque and misleading.

Here is my simple example. You and I both go in to a shop and spend $50. I pay by Visa Debit and you pay with your Super premium card. Same transaction.

If I press "SAV" The cost to the merchant is about $0.10
If I press "CR" The cost to the merchant is about $0.40 (Interchange plus) or less. Happy to be corrected on this.

If you press "CR" (to get your points) this could be as high as $1.25 (High net worth rate plus margin)

Why should the merchant pay 3 times more for your $50 transaction than my $50 transaction on the same card scheme running down the same pipe with the same outcome at both ends? The only difference is that the merchant is subsidising your rewards program.

 

[TRS-80]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

ANZ are first cab off the rank http://www.australianfrequentflyer....rd-rewards/anz-qff-card-earn-rates-81443.html

Companion AMEX is gone, although the Visa earn rates are up slightly, the real killer is the very low monthly caps on points earn at the increased rates.

 

[Pablo]

It will be interesting to see the fallout from ANZ on this, or if this is the first domino to fall and more to come. Just applied for the ANZ Black Last week in my wife's name as I cancelled my ANZ Black a few weeks ago (didn't want to pay the annual fee) but looks like we will only use my Wife's till August.

 

[Jeffrey O'Neill]

Re: Interchange regulation will lower Visa and MasterCard Points Earn in 2016

Why should the merchant pay 3 times more for your $50 transaction than my $50 transaction on the same card scheme running down the same pipe with the same outcome at both ends? The only difference is that the merchant is subsidising your rewards program.

This why I'm torn on the issue. I know the higher interchange fees from a few years back were paying for my points.

The question is does lowering the interchange fee have any benefits?

I suppose it dose in that allowing surcharges for AMEX means businesses don't have to inflate their overall pricing to account for the higher costs of accepting amex.

Views on credit cards are "strange"in australia. Was shocked that a friend from singapore a couple of weeks ago gave me a cats bum face when i said why don't you just use your credit card instead of getting cash out and paying the ATM fee. He didn't want a CC. Friends in Thailand have similar views, with a lot prefering to pay cash that via credit, or even using a debit credit card.

The knowledge the way tings are going is fairer doesn't make me not look longingly at the USA and how easy it is to earn points there