Poor logic of credit card surcharges

[ANDREWCX]

I was just thinking about the issue of charging a surcharge for credit card usage in Australia (and how it is not allowed in the US) and the logic off it.

So, I understand the theory was to recover the cost of the merchant fees charged on credit card transactions ~3%

However, what is odd is the lack of recognition that all payment systems have costs associated with them - for instance, you have to bank cash received, which either means paying for an armored guard service, or paying a staff member to go to the bank and deposit the money. The cost is harder to quantify, but it is definitely there.

Same with EFTPOS payments, at minimum the store is paying for the EFTPOS service etc - I refuse to believe the banks provide it for free.

Cheques have the same issues as cash + a delay in ability to access the payment - worse in fact because even if you have only a little cash to bank that you might just leave in an on-site safe, you have to bank the cheques pretty quickly to minimize potential issues.

So - I know that the decision was as much political as anything else and that the 'benefits' are conveniently intangible (prices rising slower than they would otherwise), and I am sure businesses are making more money up front from the surcharges, but how have the other costs increased, is it actually beneficial for anyone (merchant, customer, banks)?

 

[Mal]

Yep, or what annoys me more is the 2 faced system used where a company can get away with it.

Perfect Example Rydges, another perfect example is Qantas.
At the upper end of credit card surcharges in Australia.
No credit card surcharge in NZ or their other countries.

 

[ANDREWCX]

another perfect example is Qantas.

Don't get me started on Qantas charging a surcharge while at the same time pushing Credit Cards like wild through all their cobranded bank relationships - I mean, there are cobranded QF Amex, Diners, & Visa as well as QF earning Mastercards etc. I am actually quite surprised the banks didn't stop QF charging a surcharge.

As for them not charging a surcharge outside Australia - I am sure they would if it wasn't illegal in those countries (or at least a breach of their merchant agreements).

 

[oz_mark]

However, what is odd is the lack of recognition that all payment systems have costs associated with them - for instance, you have to bank cash received, which either means paying for an armored guard service, or paying a staff member to go to the bank and deposit the money. The cost is harder to quantify, but it is definitely there.

Same with EFTPOS payments, at minimum the store is paying for the EFTPOS service etc - I refuse to believe the banks provide it for free.

Cheques have the same issues as cash + a delay in ability to access the payment - worse in fact because even if you have only a little cash to bank that you might just leave in an on-site safe, you have to bank the cheques pretty quickly to minimize potential issues.

So - I know that the decision was as much political as anything else and that the 'benefits' are conveniently intangible (prices rising slower than they would otherwise), and I am sure businesses are making more money up front from the surcharges, but how have the other costs increased, is it actually beneficial for anyone (merchant, customer, banks)?

If you read the RBA report, you will find that it does talk about the various payment systems and the costs associated with each. It also finds, rightly or wrongly, that credit cards were the most costly form of payment to merchants, but also the one that banks were promoting most. So they gave choice to retailers to recover this extra cost.

So much for the theory, but since the change was made a few years ago, there appears to be not a single shred of evidence that it imporved the situation for everyone who was apparently cross subsidising the charges. All that happened was companies with the most market power in various industries whacked a surcharge on.

 

[medhead]

So much for the theory, but since the change was made a few years ago, there appears to be not a single shred of evidence that it imporved the situation for everyone who was apparently cross subsidising the charges. All that happened was companies with the most market power in various industries whacked a surcharge on.

The whole point of the surcharge was to make the fees more transparent. under the old system the merchant was paying processing fees that were subsidising points earning. I believe there might also have been 3rd party processing fees involved in sending payments between banks.

The change reduced or removed the ability to charge excessive hidden processing fees, and gave the merchant the ability to recover their fees.

The evidence that the subsudisation has decreased is things like points capping on Visa and Mastercard, which has introduce almost immediately after these changes. Notice that the changes don't apply to AMEX and DC and that they don't have monthly points caps. In fact, the banks will offer you a bank branded AMEX or DC specificially to use once you reach the monthly cap. Well ANZ did for me about 2 weeks have the fee system was changed.

 

[opusman]

Notice that the changes don't apply to AMEX and DC

Yes I remember reading at the time of the changes that the RBA didn't have jurisdiction over Diners/Amex and so the changes wouldn't affect them - but it doesn't seem to have stopped companies charging surcharges for them anyway. I sometimes wonder what the merchant agreements say about this and wonder why Diners/Amex don't choose to enforce this provision if it is in fact not allowed.

 

[jamesatfish]

So, I understand the theory was to recover the cost of the merchant fees charged on credit card transactions ~3%

As a business owner I don't object to companies adding a surcharge to cover the costs of processing payments in a certain way (although I don't add a surcharge in any of my own companies), but what irks me is that firms are profiting from the surcharge.

For Visa and MC transactions my bank charges me about 0.7%, and it's not stretching the imagination to assume that corporations the size of Qantas & Telstra for example can negotiate much better rates given their turnover with the banks.

It's very frustrating then to see surcharges in the order of 2-3% from these major corporations - essentially they are making up to 2.5% additional revenue from your credit card payment compared to other forms of (non-surcharged) payment.

 

[Mal]

Yep, I doubt Rydges pays as much as they charge:

"Credit Card Transaction Fee
Payments by credit card will incur a transaction fee reflecting bank charges incurred by Rydges for card payments for Australian Hotels only. Current fees are 1.5% of the transaction total for Visa and Mastercard, and 3.5% of the transaction total for Diners, American Express and JCB Card. Fees are subject to change, and applicable fees will be confirmed on check-in. Payments by Cash or EFTPOS do not incur transaction fees. Guests may elect to change method of payment on check-out to Cash or EFTPOS to avoid these fees."

This is a blatant rip-off and Rydges should be ashamed of this. 3.5% on Amex? Give me a break. They either need to re-negotiate their merchant policy with Amex, or actually calculate the real cost. I hope Rydges lose a huge amount of bookings from this stupid decision, and I'm very close to cancelling my outstanding reservations with Rydges as a result.

 

[coco50]

Don't get me started on this - I'll go on for hours! I can see no justification for CC surcharges - Sure there is a cost involved and merchants cough on about that but they forget to mention the benefits such as no cash to handle, few payment problems, etc. Where I have a payment to make online suc as council rates and they want to impose a surcharge I write a cheque and pay it in person when I am passing by. Then they have to use up clerical time to process the instrument.

 

[brett-au]

On the issue of cash vs credit card costs.

I would suggest that it costs the same amount for an armed guard to rock up to a store and take $50 cash out of the safe as it does to take $50,000.

But if Amex is charging say 0.5% then their operating costs are going up (fixed cost with cash, increasing cost with increasing sales). The lack of cash could mean a store might ask the armed guard to come every second day or only after the weekend.

I don't agree with the charges being 1%+ for Visa/MC on a normal business (things like charities/computer stores are okay), but I do think that its acceptable that they can charge some additional amount - say 0.5% on Visa/MC and 2% on Amex/Diners.

I certainly don't agree that the fee is there for every transaction (eg wotif/qantas/etc) and there are no other alternatives.

 

[Hvr]

I dare suspect that if QF said to the CC companies we're going to accepting your cards until your fees become a bit more reasonable, then the fees would quickly be lowered.

The true cost of cash is not, IMNSHO ever properly factored into the cost of the transaction. If it were then there would be a surcharge for using it!

A thought from left field here, do the airlines and other businesses see the consumer protection offered by CC companies as being an expense and therefore try to recoup money via fees?

 

[medhead]

Yes I remember reading at the time of the changes that the RBA didn't have jurisdiction over Diners/Amex and so the changes wouldn't affect them - but it doesn't seem to have stopped companies charging surcharges for them anyway.

I'm not exactly sure on this point. But my understanding was that the RBA couldn't alter the AMEX/Diners backend processing fees. But they still made it possible to charge a surcharge for AMEX/Diners. The theory being that competition would force those companies to bring their fees into line with other CCs.

As for being ripped off by the surcharges, it is pretty rubbish and I do avoid them. But at least now I know what I'm paying for my program points, rather than it being hidden in the price of the goods.

 

[kyle]

Don't get me started on this - I'll go on for hours! I can see no justification for CC surcharges - Sure there is a cost involved and merchants cough on about that but they forget to mention the benefits such as no cash to handle, few payment problems, etc. Where I have a payment to make online suc as council rates and they want to impose a surcharge I write a cheque and pay it in person when I am passing by. Then they have to use up clerical time to process the instrument.

Or just write a cheque and post it in a stamp-less envelope without a return address. I think Aust Post still delivers it, but can't recover the postage cost from the sender because they cannot ascertain the sender's address without opening the envelope.

 

[Dave Noble]

Or just write a cheque and post it in a stamp-less envelope without a return address. I think Aust Post still delivers it, but can't recover the postage cost from the sender because they cannot ascertain the sender's address without opening the envelope.

I believe that the recipient has the choice on whether to pay fees or just decline to accept the letter; I suspect that they may decline to accept the letter

Dave

 

[Mal]

I suspect that they may decline to accept the letter

I wonder if the letter would then be routed to the "Dead Letter Office", officially opened and when it's realised that it is a cheque whether it would be forwarded to the final company or not.

Or maybe the letter would be destroyed. May have to try it one day

 

[kyle]

Ok, maybe put a stamp on, but sabotage the barcode so the clerk has to manually key in the information.

And while I'm at it, I hate those organizations who send out non reply paid envelopes.

 

[oz_mark]

Ultimately, Australia Post cannot compel the receiver to pay any underpaid postage. The procedures require them to attempt to recover it from the addressee, however should they not pay it becomes a 'refused article without a return address'.

In dealing with a 'refused article without a return address', the article will be inspected. If an address of the recipient is found it goes there.

 

[albatross710]

I know our business is better off with the surcharges.

Three years ago we paid 1.8% charge when we processed customer transactions, now we are down to 0.8%.

Amex is standing out as being pretty poor value at 3%.

 

[medhead]

Or just write a cheque and post it in a stamp-less envelope without a return address.

There is a bloke in NSW who does this whenever he sends in a complaint to the government, but he also posts in the yellow pages with his complaint letter. And the government pays the postage.

 

[Mal]

Amex is standing out as being pretty poor value at 3%.

If it's ok to ask, what type of industry? Just curious because that sounds higher than other figures I've seen bandied around.