Poor logic of credit card surcharges

[JohnK]

I cannot see any justification for credit card surcharges.

The silly example is Qantas with its $6.60 surcharge for domestic flights so for a $79 flight SYD-ABX the surcharge is 8.35%. Qantas is making a huge profit in these situations. Virgin does not escape criticism as they also charge $3 per sector and with lower airfares the surcharge is a higher percentage.

As far as I can see there is a cost involved with all types of payments even cash. So why not male surcharges illegal and let businesses recover their cost through product pricing rather than surcharges....

 

[Nutcase]

I cannot see any justification for credit card surcharges.


As far as I can see there is a cost involved with all types of payments even cash. So why not male surcharges illegal and let businesses recover their cost through product pricing rather than surcharges....

The idea behind the reforms was to make the pricing transparent. The RBA's position was that Cash customers were subsidising credit cards and rewards programs especially. Visa and Mastercard also had an honor all cards as well as a no surcharge agreement within their merchant agreements. This was overruled and determined to be cartel behavior.

Unfortunately it doesnt really work in the real world and you have all made very good points. Whilst card fees to merchants have reduced (to less that 1% in many instances) Customers are now paying more. More card fees (to recoup costs) and also surcharges (because merchants can now). Rewards schemes are now diluted to the point of having little or no value because the revenue stream has been destroyed.

The complexity of pricing and interchange (the amount that banks pay each other for using eachothers networks) is astonishing. By way of example: The wholesale cost for a Visa transaction differs between card types. A Platinum card is more expensive to process that a Gold or Silver hence the reason why citbank has changed the points earn on Silver cards and why platinum cards are being pushed. There is also a nasty twist where with Utilities, the fee is flat (XXcents) rather that a %. If merchants were to be truly transparent, then they should charge differently for different cards which of course is ridiculous.

Then there is Visa Debit. A once poisonous product now being pushed by all major banks because of the fact that merchants will have to pay a merchant service fee for what was once an EFTPOS transaction. Clever people these cards companies. The RBA once asked Visa and Mastercard to withdraw these products because of what has now happened with the proliferation of these cards.

My favourite is Optus. They charge me 1% for me to pay my $99 phone/internet bill with Amex thus recouping $1. If I paid by Bpay this would COST Optus around 80cents. Why dont they surcharge for Bpay?

Even Cash and cheques cost money to process. Personally they should factor in all of this when surcharging however that isnt ever going to happen

 

[albatross710]

Then there is Visa Debit. A once poisonous product now being pushed by all major banks because of the fact that merchants will have to pay a merchant service fee for what was once an EFTPOS transaction

Visa Debit card is treated as an EFTPOS transaction. In our case 22 cents per transaction.

I looked at our card fees a lot closer. We operate in the appliance industry with average transaction around $700.

We are paying :

Amex 2.75%
Visa/Mastercard 0.8%
EFTPOS/Debit 22cents per transaction.

Prompted by this thread I called AMEX to see if they would renegotiate the fee. They said no. They will look at their fee level over the next few years. (yes.."next few years"...They said people whom use AMEX are a better class of people.

I think we will look internally at dropping AMEX. Most people also carry a Visa/Mcard so they will still make the transaction with us.

 

[oz_mark]

Then there is Visa Debit. A once poisonous product now being pushed by all major banks because of the fact that merchants will have to pay a merchant service fee for what was once an EFTPOS transaction. Clever people these cards companies. The RBA once asked Visa and Mastercard to withdraw these products because of what has now happened with the proliferation of these cards.

I vaguely remember the RBA hving a go at Visa/Mastercard about them trying to charge the same as a CC transaction.

 

[medhead]

The idea behind the reforms was to make the pricing transparent. The RBA's position was that Cash customers were subsidising credit cards and rewards programs especially.

<snip>

Rewards schemes are now diluted to the point of having little or no value because the revenue stream has been destroyed.

This also means that the cash customers were also subsidising the original excessive reward schemes. The payments system had been in place for a long time and then along came all these rewards schemes and within, what, about 7 years the RBA is making wholesale changes to the payments system.

Not that I agree with the changes. Just that the catalsyt for change was reward schemes and it's hard to deny that they were excessive. Someone had to pay for that and it wasn't the banks.

 

[albatross710]

What irks me is that the only thing that AMEX has going for it is the Rewards program.

When the surcharge is passed onto the consumer, ie the Amex surcharge 3 times price of Visa: the consumer usually baulks and just pays by Visa.

I know I'm happy to use AMEX at the same price as VISA but when the full amex surcharge is passed onto me, I go VISA.

If MAEX rewards were 3 times what I get on Westpac Altitude it coul dbe line ball but I understand the AMEX is usually only twice as many points.

 

[openseat]

My favourite is Optus. They charge me 1% for me to pay my $99 phone/internet bill with Amex thus recouping $1. If I paid by Bpay this would COST Optus around 80cents. Why dont they surcharge for Bpay?

Even Cash and cheques cost money to process. Personally they should factor in all of this when surcharging however that isnt ever going to happen

I am just dreading the inevitable day when BPAY becomes a surcharge amount. I'm sure Qantas will revel in the possibility to screw over their customers.
The Qantas surcharge for credit cards is more to do with 'rent' seeking behaviour than cost recovery. Something that will begin to emerge in other sectors of the economy where the oligopolistic realities will really come home to roost. The price of having a few big firms who have lobbying power with government at all levels.

 

[oz_mark]

I am just dreading the inevitable day when BPAY becomes a surcharge amount. I'm sure Qantas will revel in the possibility to screw over their customers.
The Qantas surcharge for Credit Cards is more to do with 'rent' seeking behaviour, than cost recovery. Something that will begin to emerge in other sectors of the economy where the oligopolistic realities will really come home to roost. The price of having a few big firms who have lobbying power with government at all levels.

Some places already surcharge on BPAY payments (e.g. Diners Club, GE Money on some cards)

 

[Chicken]

I think what the RBA really wanted was to push people back to the cheaper EFTPOS system, instead of more expensive Visa / MasterCard schemes.

For example, when people come in to buy things in person, there is no reason for them to press credit key, which costs us $0.80 for a $100 transaction. They should press savings or cheque, which costs $0.15 only.

RBA was simply saying, if you want to borrow money for 30 days, or if you want FF points, you should pay for it, not subsidized by other consumers.

I know for sure that, my work will set prices higher if merchant commission is higher.

 

[Dave Noble]

Unfortunately it doesnt really work in the real world and you have all made very good points. Whilst card fees to merchants have reduced (to less that 1% in many instances) Customers are now paying more. More card fees (to recoup costs) and also surcharges (because merchants can now). Rewards schemes are now diluted to the point of having little or no value because the revenue stream has been destroyed.

Not all customers are paying more; those of us which do not use debt cards are not subsidising those that do

Dave

 

[drron]

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.

Whenever I received an unwelcome offer for shares from Mr. Tweed I attached the reply paid envelope to a box containing a brick-No more approaches after doing it twice!

 

[Nutcase]

I think what the RBA really wanted was to push people back to the cheaper EFTPOS system, instead of more expensive Visa / MasterCard schemes.

For example, when people come in to buy things in person, there is no reason for them to press credit key, which costs us $0.80 for a $100 transaction. They should press savings or cheque, which costs $0.15 only.

RBA was simply saying, if you want to borrow money for 30 days, or if you want FF points, you should pay for it, not subsidized by other consumers.

I know for sure that, my work will set prices higher if merchant commission is higher.

Unfortunately, the EFTPOS system (run by the banks) has been left alone for a number of years and as such is a bit out of date. For instance, there has been no real move towards being able to pay over the internet with EFTPOS - hence the rise and rise of Visa Debit who's competitive advantage has always been that you can use your own money wherever Visa or Mastercard is accepted - worldwide.......... at a cost. Merchants love EFTPOS especially large ones like supermarkets as in their case they make money out of every transaction and it can cut down on their cash holdings (Cash out).

The RBA's analysis comprised of much of the debate that we are having. The other issue was interchange and how that it was seen as cartel behavior as the banks were all paying each other and artificially keeping the cost of accepting Visa and Mastercard high. Now that it is transparent, there has been a significant drop in the cost to merchants, however there has also been a move to charge consumers to use cards as we have all experienced.

Amex and Diners were excluded from all this as there is no interchange in their regime which has handed them a huge advantage and massive increase in market share so much so that Mastercard threatened to stop issuing cards in Australia.

 

[oz_mark]

Amex and Diners were excluded from all this as there is no interchange in their regime which has handed them a huge advantage and massive increase in market share so much so that Mastercard threatened to stop issuing cards in Australia.

While Amex and Diners were handed a huge advantage, only Amex seems to have taken the ball and run with it. I find it difficult to see that Diners has significantly improved its market share as a result of these changes.

 

[rwatts]

While Amex and Diners were handed a huge advantage, only Amex seems to have taken the ball and run with it. I find it difficult to see that Diners has significantly improved its market share as a result of these changes.

Indeed a year or so back Crikey carried a claim in their Tips & Rumours section that Diners would be out of Australia by the end of that year. Of course that didnt happen but it was just after Diners won the contract to supply the Defence Travel Card. Maybe it would have been true if they didnt get the contract.

Richard.

 

[Dave Noble]

I think what the RBA really wanted was to push people back to the cheaper EFTPOS system, instead of more expensive Visa / MasterCard schemes.

For example, when people come in to buy things in person, there is no reason for them to press credit key, which costs us $0.80 for a $100 transaction. They should press savings or cheque, which costs $0.15 only.

For those that pay bank fees, there is an incentive to use the credit button rather than the Cheque/Savings button since ( at least with my bank ) there is no charge for CR transactions whilst CHQ will be charged for once any monthly free allowed transactions are completed

Personally, I also prefer not to be using my PIN in the machines in case, like the UK systems, they maintain details of the last few transactions plus the PINs

Dave

 

[Mal]

Not all customers are paying more; those of us which do not use debt cards are not subsidising those that do

Any transaction costs money. By me paying a credit card surcharge, I am actually subsidising any cash purchase (handling of coins, threat of robbery, insurance, chance of staff theft etc). On a website, the only reason debit card payment (eg BPAY or similar) is free, is often not because it costs nothing to the organisation, but instead that they want to 'appear good' to customers and to appease consumer types. It also appears that credit card surcharges are excessive compared to the actual amount of the excess cost over a cash transaction.

Credit card surcharges are cream to a business. I really don't think costs have gone down since surcharges were implemented, and wish it never happened.

 

[bambbbam2]

I use an ANZ Visa Debit as my main card. I always press 'SAV' because the fee on the account is a fixed $6 per month.

Why should i disadvantage the retailer by pressing 'CREDIT'. Maybe if they offered points I would, but stuff 'em. otherwise.

 

[one9]

Any transaction costs money. By me paying a credit card surcharge, I am actually subsidising any cash purchase (handling of coins, threat of robbery, insurance, chance of staff theft etc). On a website, the only reason debit card payment (eg BPAY or similar) is free, is often not because it costs nothing to the organisation, but instead that they want to 'appear good' to customers and to appease consumer types. It also appears that credit card surcharges are excessive compared to the actual amount of the excess cost over a cash transaction.

Credit card surcharges are cream to a business. I really don't think costs have gone down since surcharges were implemented, and wish it never happened.

Yes most transaction methods cost money. But credit cards are most expensive for many organisations. For example, for my business the average sale is around $500. We estimate cash to cost 0.3%, EFTPOS to cost 0.04%, Cheques to cost 0.25%, Visa/Mastercard to cost 0.82% (0.7% to the bank, 0.12% for fraud), Amex to cost 3% and Diners to cost 3.15%.

All payment methods incur costs, but credit cards are considerably more. EFTPOS is the cheapest at about 9 cents per transaction, which for a $500 purchase is a $4.01 saving compared with Visa/Mastercard.

We do not charge for Visa/Mastercard because in our industry we cannot - people would just go to our competitors. We do charge for Amex/Diners, because if we did not, we would have to increase our prices or not accept Amex/Diners. However I believe that it is only fair that companies make users that use payment methods with higher costs pay.

 

[coco50]

It's the ad valorem impost that gets me. 2.5% on $700 is much more ($17.50) than 2.5% on $100 ($2.50) and yet each transaction takes the same amount of effort to process electronically. If I have the time I'll pay by cheque and put the cost back on the merchants. One day they'll realise that it would have been better to absorb the transaction costs instead of paying higher wages bills.

 

[oz_mark]

It's the ad valorem impost that gets me. 2.5% on $700 is much more ($17.50) than 2.5% on $100 ($2.50) and yet each transaction takes the same amount of effort to process electronically.

The cost of processing the transaction is probably the same. The cost of providing the funds (as it is essentially a loan) increases in line with the value of the transaction