RBA ramps up surcharge review amid growing consumer and political pressure

It turns out that it is not just consumers that are getting heartily sick of what has been described as the “surcharging rort” that is costing us billions of dollars a year.

The Reserve Bank of Australia, which has been conducting what seems to have been a fairly leisurely paced review of surcharges with a view to some sort of regulation, has significantly quickened its pace in the face of growing political and consumer angst.

There is also a growing recognition that the global card networks, banks, payment and technology companies and others have ramped up profiteering while they can.

Charges have risen to an astonishing $4 billion

Early estimates were that point-of-sale surcharging was costing Australian consumers around a billion dollars a year but that estimate has now blown out to an incredible $4 billion a year, as estimated by Canstar.

After some fairly alarming evidence in a “fee free digital” campaign being run by Labor MP Jerome Laxale that some of the card companies are “having a laugh” at the expense of consumers, the RBA has said it will bring forward a review of merchant costs and surcharging before the end of this year.

It is now hopeful of releasing a consultation paper this year too, which would give notice to all of the players in digital payments of the potential new rules in what has developed into a free for all of escalating surcharges.

Public petition against surcharges

Mr Laxale, who has started a public petition against surcharges, describes the current situation as one of “kickbacks and rorts” that had become a nightmare for both consumers and small businesses.

“Card providers, merchant and technology providers, and the banks are having a laugh here, scraping $4 billion off our bank accounts to provide an essential service that costs less to operate and maintain than its free, non-digital alternative,” Mr Laxale said.

One of the options that the RBA will be looking at is what has become the European solution – which includes the Brexited UK – of banning point of sale surcharges altogether.

It is an option that must look increasingly appealing as what started as a small contingent of surcharges quickly developed into a welter of fees that seem to have very little rhyme or reason and a staggering array of “rates” that don’t seem to relate to the actual and highly variable cost of the service.

Small businesses pay more for access

It is made even more complex because small businesses seem to be cut out from the sort of deals large retailers can do with the banks and card companies.

Some hospitality businesses have even built in different surcharges like public holidays or Sunday charges into the final sale charge, adding to the potential for bill shock and working against the RBA’s insistence on price transparency.

It is also now extremely common to be charged a surcharge without having been alerted to the fact that one even exists, even though adequate signage is a legal requirement governed by the ACCC.

The size of the surcharge – which is meant to reflect the actual cost of the service to the business – now bears very little relation to that cost.

That is leading to cross-subsidisation of high-cost credit cards which are having the same surcharge applied as much cheaper eftpos payments.

Flat pricing plans blunt competition

Such so-called “blended” and flat percentage priced fee plans are reducing competitive pressures and getting around the RBA’s plan for systems to always use the lowest cost routing.

The lack of transparency about who is paying fees and how large they are is also a big issue, as I discussed here.

For example, would you have any idea of what Apple is charging your bank every time you tap your phone at a point of sale?

Even the RBA has struggled to find out the answer to that one, with payments to technology companies effectively a secret that even the regulator struggles to quantify.

Of course, mandating least cost routing and scrapping point of sale surcharges does not remove the cost of doing business through point-of-sale terminals.

What it does do, though, is take away the pricing uncertainty that prevents easy comparison shopping and blunts competition.

For example, at the moment how would you choose between two merchants for a very expensive item if you didn’t know whether they charged surcharges and how large they were?

I recently got a more than $40 shock surcharge for a large car service and there was absolutely no signage on the terminal or elsewhere about a surcharge or what percentage it would be charged at.

Backing all costs into the price promotes comparison shopping

If the price of running payments is built back into overall pricing – just like staff costs, property rental and electricity bills – then consumers are more empowered to check prices and bring competitive forces to bear.

Despite all of the vested interests arguing the toss and even the grass roots campaigns to return to cash – which actually costs more than digital payments but surprisingly works out cheaper for consumers – this looks like being one of those cases in which the RBA will need to take a very tough regulatory position.

As Mr Laxale put it: “I think that Australians have now begun to ask themselves; why are we even being charged these fees at all?”

It is a question he plans to put to the chief executives of the major banks when they appear before the house economics committee.

No doubt the RBA will be tuning in to that discussion as well as it speeds up its response to what has become a very real and difficult to manage part of the payments system that it regulates.