Banks Lose Credit Card Fee Fight with RBA. What no

A possible $300 million cut to banks revenue from the highly lucritive card interchange system MUST have an impact on bank sentiment from here on in.

Think about it - the banks are going to be made to encourage their customers predominately retailers to try to charge their customers a fee for using credit cards. How well do you think THAT is going to go down ?

So is it just the $300 million or potentially much more as consumers begin to choose to avoid cards.

This is the lead story from todays AFR.

Banks cave in on credit card fees
Jun 17
George Lekakis

Retailers will be able to charge customers for using credit cards after major banks caved in to the Reserve Bank of Australia's push to reform the credit-card market.

Three major banks have given way to the RBA on reform of credit-card fees and interchange in a move that could cost card-issuing banks as much as $300 million.

Sources close to the discussions say that National Australia Bank, ANZ, Westpac and most of the regional banks had accepted the thrust of the RBA-Australian Competition and Consumer Commission reform agenda. The reforms include plans to let retailers charge consumers to cover the costs the shops incur on credit-card transactions.


The RBA is expected to finalise its reform program by the middle of next month, with a public announcement likely before the end of August, and there will be intense negotiations amongst the banks over new interchange fees.

The banks have also accepted the Reserve's proposal aimed at removing entry barriers to potential new players in the credit-card market.

A senior banking-industry source said on Friday that most banks had "come to terms" with the reform agenda, after individual consultations with the regulator over the past six weeks.

"There is a consensus around the shape of the reform plan, but there is still some debate with the RBA on the formula for setting the interchange rate on credit-card transactions," the source said.


For the past two years, the RBA and ACCC have pressed the banks to reveal more information about how they charge each other and users for card use and to allow new players into the system.

But the banks say some of their fees may increase if the system is deregulated and some consumers will be the losers .

CBA, the largest retail deposit taker and debit-card issuer in the country, remains unhappy with the changes on credit cards. It is also believed to have fallen out with other banks, particularly the regionals, on possible reform of interchange fees on debit cards.

The capitulation of the local banks is a breakthrough for the RBA, despite continued opposition from the international credit-card schemes, Visa and MasterCard.

Both now face the prospect of a massive loss of business in Australia as the banks consider proposals to migrate their credit-card portfolios to proprietary card programs such as American Express and Diners Club, which are not subject to most of the RBA reforms.

It was revealed last month that NAB has already entered discussions with Amex to explore opportunities for a joint-venture payment card company. At least two other majors - Westpac and ANZ - have since been in talks with Amex.

Visa's director of corporate communications, Peter Vicary, yesterday warned that Visa might sue the Reserve Bank if reforms damaged the economic appeal of his organisation to member banks or provided a competitive lift to Amex and Diners.

"If Visa sees its fundamental business interests being compromised, then litigation is a strong option," he said. "We see this as having a long way to go."

Mr Vicary said there was no mechanism under the Payments System Act for Visa to appeal against the Reserve's decisions. "The RBA is judge, jury and executioner and we don't see that as appropriate at all," he said.



Most banks have accepted that they will not be allowed to include the cost of providing loyalty schemes in the setting of interchange fees - a proposal that was resisted aggressively by ANZ and Westpac last year.

The average interchange fee imposed on retailers and other merchants for credit-card transactions is about 1 per cent, and the RBA is expected to cut the rate to between 0.5 and 0.7 per cent.

That would bring credit-card interchange fees in Australia into line with most western European countries, which have a proposed median rate of about 0.7 per cent.

While card experts estimate that the reduction on interchange will cost the banks about $300 million in annual revenue, they believe the impact could have been more severe.

"We are viewing this as a slight positive for the banks in that they could have lost hundreds of millions more if the interchange rate was to be cut to the previously speculated level of 30 basis points," Macquarie Bank credit-card analyst William Ammentorp said.

ANZ - the country's largest credit-card issuer - is expected to take the biggest hit, losing up to $100 million in interchange revenue after reforms are implemented. While most banks appear to be taking a more conciliatory approach to the reform proposals, it is understood that Commonwealth Bank of Australia remains the least enthusiastic about it.


Last week CBA managing director David Murray renewed his public opposition to the reforms, saying the banks would have no recourse to appeals against RBA decisions. "It's the court of no appeal once again for business in Australia," he told a business lunch in Melbourne on Friday.

It is understood that the CBA was lobbying the other banks to accept a zero-rate interchange fee on debit-card transactions.