It looks like the NSW Government is worried about credit card surcharges.
EXCESSIVE fees for credit card purchases could be abolished in the wake of an inquiry into exorbitant surcharges.
The charges are often applied by corporations with market dominance, such as airlines and taxi firms.
They were allowed to be introduced by the Reserve Bank in 2003 in an effort to let companies recoup the cost of transactions.
Research has found taxis and airlines are slugging customers up to 10 per cent, with Qantas and Tiger airways last year delivered a “shonky” award by Choice for charging passengers $7.70 each.
Choice said the real cost to the airlines was more like 1 per cent.
The New South Wales Government will today launch a research project into exorbitant credit card surcharges, with a view to cracking down on fees.
So almost a decade ago the ACCC/RBA had an inquiry and found that the fact that card associations prohibited surcharges was a bad thing because it prevented merchants from pricing the extra costs they faced from card use. Now the NSW Government is outraged at surcharges because they are harming card users. Of course, that was the point of the RBA prohibiting a rule stopping surcharging.
What they are saying is that surcharges should be regulated to be no more than the cost of the merchant service fee. At the moment, surcharges above that look like a mechanism for price discrimination. Of course, the RBA was fully aware that might occur and, indeed, Stephen King and I predicted it in this paper. But it was also likely because the one place that surcharges were allowed, in taxis, had a 10% charge for as long as anyone could remember. And let’s face it, the surcharge would surely be worth it relative to the cost of having enough cash for the cab. I only wish it existed here in the US.
Anyhow, I can only guess that the credit card companies and the banks will just love the NSW Governments suggestion. This is a regulation that benefits them. When merchants charge more than the costs of card usage, the banks lose out as cards aren’t used as much. Regulating in this manner would be a form of downstream price cap that will leave the banks with as much as they usually get but over more transactions. Moreover, they won’t have to compensate for the merchant action by providing expensive loyalty rewards schemes. Who would have thought that Choice, of all organisations, would be supporting the banks like this? Not that there is anything wrong with that.
From my perspective, this is not the greatest issue in the world as it is a reflection of retailer market power rather than a problem with the credit card system. But the paper we wrote back in 2001, outlines all of the trade-offs anyone would need to consider.