Visa warns Reserve Bank fee cut plan will backfire on shoppers

2 hours ago 1

Reserve Bank plans to drive down the fees on credit and debit card transactions will ultimately hurt Australian consumers while denying the country new technology that could make trips to supermarkets a thing of the past, one of the world’s biggest card companies has warned.

Just days after Reserve Bank governor Michele Bullock rounded on commercial banks and credit card providers for their resistance to the bank’s plans, Visa said small and medium-sized businesses could pay the price for the RBA’s actions.

The fees imposed on merchants to use card payments have become a flashpoint between the Reserve Bank and card issuers.

The Reserve wants to ban surcharges imposed by some merchants on customers who use cards to pay for goods and services in a move the bank believes will save shoppers $1.2 billion a year.

It also wants to lower the cap on interchange fees that businesses have to pay payment service providers (including fintechs such as Square) as well as banks that provide terminal technology. The biggest losers from the move would be the banks and card providers, who face a $900 million cut in income.

That has prompted suggestions by banks and credit card companies that they will have to wind back spending on anti-fraud action, a move that Bullock described as akin to the businesses “shooting themselves in the foot”.

But Visa Australia’s head of client engagement, Ivana Tranchini, said the RBA’s interchange fee plan could easily hold back the next wave of technology and anti-fraud developments that Australia was leading the world in developing.

She said there was a big difference between not investing in ongoing fraud control and not being able to invest in the next phase of anti-fraud systems that would enable improvements across the entire payments system.

“We are one of the most highly penetrated markets for contactless payments in the world, so we can pretty much go anywhere from Sydney to Coonabarabran, and you can tap your mobile phone. In the US, you can’t do that,” she said.

“For the next two to three years, the [payments] ecosystem in Australia is likely going to have to invest $2 billion a year to get us ready for that next evolution of innovation.

“That innovation has to come with the corresponding security so it’s not about reducing the fraud mitigations or the security investments that we’ve got today. It’s actually the next layer of investment that we need for tomorrow.”

Tranchini said one of those innovations was so-called “agent-led commerce” where a shopper could use AI to carry out mundane shopping practices.

Instead of a person heading to a supermarket to pick up a bottle of milk, AI would recognise a household is running short of the essential, order the product, pay for it and have it delivered.

“That seems like a really great experience. It gets delivered to my house without me even having to think twice,” she said.

“But there’s a lot that goes into making that experience happen to ensure it’s secure, to ensure that it’s authenticated, to make sure that the agents do what they said they were going to do.”

Tranchini said small businesses that used corporate credit cards may find it more difficult to access ongoing lines of credit if interchange fees were reduced too far.

Frequent flyer points are likely to be one of the casualties in the fight over interchange merchant fees.

She said one option for the Reserve was to charge a different interchange fee for credit and debit cards.

The debate over interchange fees has also focused attention on the way big banks and other card providers woo customers by allowing them to earn frequent flyer points with their purchases.

In the past week, Qantas has reminded its customers that they can earn up to 120,000 points with a Westpac Altitude Qantas Black credit card.

Bullock said cutting such incentives would be up to card providers, but argued that people earning frequent flyer points were being subsidised by consumers – usually lower income and younger people – who used debit cards for their payments.

“It’s funding people who are wealthier, higher incomes to get loyalty points. Who is paying those high prices? It’s the consumers that don’t use the credit cards, which are younger people, people [who use] debit cards,” she said.

In evidence to the same committee last year, Commonwealth Bank CEO Matt Comyn acknowledged that “more than 90 per cent of the economics” the bank receives from interchange fees were given back to the customer through points and “often through the purchase of frequent flyer points”.

Last month, the Australian Competition and Consumer Commission noted in a report on the nation’s airline industry that frequent flyer points were pivotal to consumers.

Up to 71 per cent of Australians claimed that frequent flyer programs were important in their purchasing decisions, with research out of the United States showing some people booked a flight simply to earn status credits.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.