The Reserve Bank of Australia has finally taken care of something that was a highly irritating to consumers Down Under: Curbing credit card surcharges levied by merchants for purchases.
Yes you heard that right: They charge the customer for using a credit or debit card to recover their merchant fees.
John has written about these fees at hotels last year on one of our Whine Wednesdays (access here).
Even when I visited New Zealand in March they had these surcharges at the two IHG hotels I was staying at and usually they hover between 1.5% up to 3% of the entire transaction. Keep in mind that your credit card company will charge you on top with a foreign transaction fee so in the end you could end up paying a good 5% more for your goods & services.
News.com Australia reported about the recent changes (see here) that will make a lot on consumers happy.
The Reserve Bank of Australia has today released its final standard on excessive surcharges, with the Australian Competition and Consumer Commission tasked with enforcing the ban.
Consumer advocates have welcomed the crackdown, which is hoped to rein in some of the $1.6 billion Australians fork out on surcharges each year.
Debit cards surcharges have been reduced from 12 to 8 cents per transaction, surcharges on regular credit cards have been capped at 0.5 per cent, and 0.8 per cent for premium Visa and MasterCards.
Retailers will no longer be able to charge more than the cost of processing the transaction under the new rules, which affect Eftpos, Debit MasterCard, MasterCard Credit, Visa Debit, Visa Credit and American Express cards.
“There are two upshots for the consumer,” ACCC Chairman Rod Sims told news.com.au.
“The most basic one is that consumers won’t get slugged for credit card surcharges that are above the cost to the retailer. The second and very important one, is that it will make it harder for companies such as airlines and ticket booking agencies to hide fees later down in web pages. …
The Australian Retailers Association has also welcomed the news. “The ARA has been working with the RBA in seeking to reduce merchant fees and aiming to have credit cards such as American Express and Diners Club regulated,” ARA executive director Russell Zimmerman said.
I just don’t get the approach of trying to recoup the payment processing fee since the reason why a business offers credit card payments to customers is to entice them buying there. Either because a credit card is the customers preferred payment method or because he doesn’t have the cash money right now. What matters is the business can close the sale and make a profit from it.
Any well run business should price their goods and services in a way that they can easily eat a payment processing fee without feeling the need to nickel and dime the customer. The optics are just bad and I’m originally from a country where credit cards made their universal entry into the broad retail market in the early 2000s. It was very rare for regular people to have a credit card unless they ordered one for international travel or business expenses, all this started when people needed a payment method to pay for things online.
Even in this select environment I have never seen a merchant that charged for the use of credit cards. Of course airlines such as Lufthansa started this game quite some time ago and charge flat fees for the use of a credit card that are more often than not in no relation to the actual merchant fee they pay to the credit card companies.
As far as Australia goes I always used my American Express at retailers like David Jones, various clothing stores, restaurants and Coles Supermarket without paying such a fee. It’s a money grab and hotels saw a way to profit from it by ripping of business travelers and tourists. And if someone wants to charge the fee I simply say I don’t like to pay it and rather not do the purchase then. Never had a problem including the aforementioned hotels in New Zealand.
Exact details about the upcoming changes in Australia can be obtained from the Reserve Bank website (access here).
When does all this come into effect?
The ban will commence on 1 September 2016 for “large retailers”, and on 1 September 2017 for all other merchants.
Large retailers are defined as either having gross revenue of more than $25 million, the value of its assets is more than $12.5 million, or it employs more than 50 people.
Pretty much any larger hotel will fall into the ‘Large Retailer’ category and therefore it’s game over for them effective September 1st 2016.
Conclusion
I’m not sure if 0.8% are worth irritating your customers. Why not just incorporate it in the price like everybody else does? I followed the comments on a few media outlets and often the argument is made that ‘cash/debit card customers subsidize the card payment fees of those who pay by credit card’ but that isn’t a valid point for me. Where do you want to draw the line as a hotel? I’m not using the sauna so because the hotel installs it for other guests I guess I subsidize that as well. And, where is the problem? It’s a hotel not a select service merchant where i pick what I pay for like a budget carrier.
And while we’re at it, airlines will be effected by this ban as well so they can brace themselves in the same manner.
Well, here in the UK (and I believe all over Europe) there was a piece of similar legislation which outlawed credit card surcharges that were not representative of the merchant’s actual costs. I believe this legislation went live in April 2015, so over a year ago……
However, there are still hundreds of examples where retailers charge way more than their cost when using credit cards, for example airport parking firms like Birmingham Airport or Purple Parking, or airlines like BMI Regional or Flybe, charging fixed fees irrespective of the cost of stay or flight; to name but a few.
And if you contact local Trading Standards – who are supposedly there to enforce this – they couldn’t care less.
So I feel that your euphoria might be shortlived. Just like the EU 261/2004 law that mandates compensation on flight delays, many consumer protection laws are simply ignored by companies and nothing at all happens.
Will wait and see how Air Asia deal with this. Or they will think of some other forms of charges.
They also seem to forget that processing cash costs businesses too, card payments are much more efficient in that regard.
Qantas often charges a flat 7 dollar fee for card processing, not too bad when the airfare is 2000 dollars but irritates me when the short haul was only 90 dollars and then a 7 dollar card processing fee.
Hey John, tried to email you directly but your spam blocker blocked my email address.
Wanted to follow up in case you were interested that the changes have now
taken effect on what you outlined in this article.
On checkout at Sheraton Sydney today it showed the below:
*The following credit card fees apply and will be charged at the time of
transaction. Visa credit/debit: 1.1%, MasterCard credit/debit: 0.8%, Amex,
Diners and JCB 2.9%.*
Previously the Visa surcharge was 1.5%
Got your email through today after the amended the spam lists that we use to filter the incoming emails. One of them suddenly had gmail blacklisted (doesn’t make any sense).