Credit card surcharging

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Sinclair Davidson points me to a speech by the RBA’s Malcolm Edey on credit card reforms. But the AFR apparently reports that:

The days of airlines, taxis and hotels hitting consumers with credit card processing surcharges as high as 10 per cent of a purchase price could soon be numbered.
The Reserve Bank of Australia, which regulates the payments system, gave its strongest hint yet yesterday that it could give card networks including MasterCard and Visa the power to cut off merchants who dress up price gouging as processing fees.

It is hard to know whether this should be taken seriously. But there are some comments worth making if it is even remotely true.

First, the RBA were well-aware that surcharging above the costs to the merchant of credit cards was likely. It was a clear implication of economic theory. In addition, CabCharge had been doing just that for years. So this is hardly an unexpected feature of the reforms.

Second, one of the main points of the reforms was to give merchants power over card networks. One way they can exercise that power is to surcharge above their own costs. So why would you want to punish them for doing that?

Third, I thought we didn’t like retail price maintenance but this type of suggestion is consistent with liking retail price maintenance and empowering it. Of course, this is to keep a price down unlike the case with milk where the government appears to want to keep the price up!

 

3 Responses to "Credit card surcharging"
  1. The RBA’s credit card reforms have inconvenienced credit card holders in Australia to an unreasonable degree.  Card holders are now paying the business cost of using their own card.  How fair is that outcome? 

    If the RBA wanted to give merchants some power over card networks, they could have offered recomendations to the federal government, who could have examined the issue to see what reforms could have been introduced, barring the imposition of surcharging hapless card holders. 

  2. Card holders are now paying the business cost of using their own card.  How fair is that outcome? 

    Perfectly fair – and I say that as a credit card user myself.  The alternative is simply that non-credit-card users subsidise the credit-card users, which is grossly unfair.

  3. If the credit card surcharge is banned from the Australian economy, non-credit card users would pay the same price as credit card users.  A small impost, but I will grant you this point.  It is inevitable that Australia and the rest of the advanced economies of the world will become cashless societies.  In this environment you will only have eftpos, debit card, charge card, and credit card transactions.  Where will the credit card surcharge function in this context?  It will most likely be withdrawn completely.  Thank you for your reply.       

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