The Reserve Bank released a report yesterday showing that some Australian merchants have been profiteering from credit card surcharges, charging customers more than they are paying to the credit card companies in merchant fees in order to turn a profit.
"I don't think there's any question about that, and any cardholder who has stepped into a taxi or tried to buy a flight online or book a hotel recently would see that particularly given the cost of accepting a Mastercard transaction - when you pay 10 per cent or you pay $7.70 for a $100 flight - there's no question that that is, that price, it's well above what that merchant pays for card acceptance," said Mastercard's head of strategy David Masters.
A Reserve Bank survey of consumers conducted last year found surcharges to be more prevalent in online transactions and at times were double that of physical retailers. A larger proportion of big businesses were found to add surcharges and their surcharges were often higher relative to the cost of the credit transactions.
"There [are] a number of merchants in this country who are taking, who have taken, what the Reserve Bank provided to them, which was intended originally to demonstrate transparency as to costs of accepting cards - there is no question that they are taking that and adding that as their bottom line in terms of using it as revenue, not as a cost recovery method," Masters said.
Christopher Zinn from consumer group Choice said that most merchants do not notify consumers of credit card surcharges until the last possible moment aka at check out.
"With a lot of e-commerce you go through the whole booking procedure, then find the surcharge right at the end and by that time people feel committed so pay up," Zinn told Radio National's Breakfast program.
"It's really consumer resistance which keeps a lid on these things, if we just meekly keep paying them, they'll keep coming."
The Reserve Bank is currently considering adding a fee cap to their transactions. The cap would limit any surcharge to the amount of fees charged to the merchant by the card companies and put a stop to gouging by merchants. Mastercard apparently supports that approach. Masters told the press, "We think that's the best way to allow us and the industry to police this. We're not a massive fan anywhere in the world of surcharging, but we think in Australia it's got to the point where it is very clearly and demonstrably increasing the cost that consumers pay at the point of sale."
The main worry is that by putting a cap on surcharges they could just lower the bar enough for more people to actually start surcharging.
The Reserve Bank is in the process of weighing its options before it comes to a decision on the best course of action.
As always, stay tuned to Credit Cards Professor for more credit card news and updates.
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