[ANDREWCX]

I was just thinking about the issue of charging a surcharge for credit card usage in Australia (and how it is not allowed in the US) and the logic off it.

So, I understand the theory was to recover the cost of the merchant fees charged on credit card transactions ~3%

However, what is odd is the lack of recognition that all payment systems have costs associated with them - for instance, you have to bank cash received, which either means paying for an armored guard service, or paying a staff member to go to the bank and deposit the money. The cost is harder to quantify, but it is definitely there.

Same with EFTPOS payments, at minimum the store is paying for the EFTPOS service etc - I refuse to believe the banks provide it for free.

Cheques have the same issues as cash + a delay in ability to access the payment - worse in fact because even if you have only a little cash to bank that you might just leave in an on-site safe, you have to bank the cheques pretty quickly to minimize potential issues.

So - I know that the decision was as much political as anything else and that the 'benefits' are conveniently intangible (prices rising slower than they would otherwise), and I am sure businesses are making more money up front from the surcharges, but how have the other costs increased, is it actually beneficial for anyone (merchant, customer, banks)?

[Mal]

Yep, or what annoys me more is the 2 faced system used where a company can get away with it.

Perfect Example Rydges, another perfect example is Qantas.
At the upper end of credit card surcharges in Australia.
No credit card surcharge in NZ or their other countries.

[ANDREWCX]

Originally Posted by Mal

another perfect example is Qantas.

Don't get me started on Qantas charging a surcharge while at the same time pushing Credit Cards like wild through all their cobranded bank relationships - I mean, there are cobranded QF Amex, Diners, & Visa as well as QF earning Mastercards etc. I am actually quite surprised the banks didn't stop QF charging a surcharge.

As for them not charging a surcharge outside Australia - I am sure they would if it wasn't illegal in those countries (or at least a breach of their merchant agreements).

[oz_mark]

Originally Posted by ANDREWCX

However, what is odd is the lack of recognition that all payment systems have costs associated with them - for instance, you have to bank cash received, which either means paying for an armored guard service, or paying a staff member to go to the bank and deposit the money. The cost is harder to quantify, but it is definitely there.

Same with EFTPOS payments, at minimum the store is paying for the EFTPOS service etc - I refuse to believe the banks provide it for free.

Cheques have the same issues as cash + a delay in ability to access the payment - worse in fact because even if you have only a little cash to bank that you might just leave in an on-site safe, you have to bank the cheques pretty quickly to minimize potential issues.

So - I know that the decision was as much political as anything else and that the 'benefits' are conveniently intangible (prices rising slower than they would otherwise), and I am sure businesses are making more money up front from the surcharges, but how have the other costs increased, is it actually beneficial for anyone (merchant, customer, banks)?

If you read the RBA report, you will find that it does talk about the various payment systems and the costs associated with each. It also finds, rightly or wrongly, that credit cards were the most costly form of payment to merchants, but also the one that banks were promoting most. So they gave choice to retailers to recover this extra cost.

So much for the theory, but since the change was made a few years ago, there appears to be not a single shred of evidence that it imporved the situation for everyone who was apparently cross subsidising the charges. All that happened was companies with the most market power in various industries whacked a surcharge on.

[medhead]

Originally Posted by oz_mark

So much for the theory, but since the change was made a few years ago, there appears to be not a single shred of evidence that it imporved the situation for everyone who was apparently cross subsidising the charges. All that happened was companies with the most market power in various industries whacked a surcharge on.

The whole point of the surcharge was to make the fees more transparent. under the old system the merchant was paying processing fees that were subsidising points earning. I believe there might also have been 3rd party processing fees involved in sending payments between banks.

The change reduced or removed the ability to charge excessive hidden processing fees, and gave the merchant the ability to recover their fees.

The evidence that the subsudisation has decreased is things like points capping on Visa and Mastercard, which has introduce almost immediately after these changes. Notice that the changes don't apply to AMEX and DC and that they don't have monthly points caps. In fact, the banks will offer you a bank branded AMEX or DC specificially to use once you reach the monthly cap. Well ANZ did for me about 2 weeks have the fee system was changed.

[opusman]

Originally Posted by medhead

Notice that the changes don't apply to AMEX and DC

Yes I remember reading at the time of the changes that the RBA didn't have jurisdiction over Diners/Amex and so the changes wouldn't affect them - but it doesn't seem to have stopped companies charging surcharges for them anyway. I sometimes wonder what the merchant agreements say about this and wonder why Diners/Amex don't choose to enforce this provision if it is in fact not allowed.

[jamesatfish]

Originally Posted by ANDREWCX

So, I understand the theory was to recover the cost of the merchant fees charged on credit card transactions ~3%

As a business owner I don't object to companies adding a surcharge to cover the costs of processing payments in a certain way (although I don't add a surcharge in any of my own companies), but what irks me is that firms are profiting from the surcharge.

For Visa and MC transactions my bank charges me about 0.7%, and it's not stretching the imagination to assume that corporations the size of Qantas & Telstra for example can negotiate much better rates given their turnover with the banks.

It's very frustrating then to see surcharges in the order of 2-3% from these major corporations - essentially they are making up to 2.5% additional revenue from your credit card payment compared to other forms of (non-surcharged) payment.

[Mal]

Yep, I doubt Rydges pays as much as they charge:

"Credit Card Transaction Fee
Payments by credit card will incur a transaction fee reflecting bank charges incurred by Rydges for card payments for Australian Hotels only. Current fees are 1.5% of the transaction total for Visa and Mastercard, and 3.5% of the transaction total for Diners, American Express and JCB Card. Fees are subject to change, and applicable fees will be confirmed on check-in. Payments by Cash or EFTPOS do not incur transaction fees. Guests may elect to change method of payment on check-out to Cash or EFTPOS to avoid these fees."

This is a blatant rip-off and Rydges should be ashamed of this. 3.5% on Amex? Give me a break. They either need to re-negotiate their merchant policy with Amex, or actually calculate the real cost. I hope Rydges lose a huge amount of bookings from this stupid decision, and I'm very close to cancelling my outstanding reservations with Rydges as a result.

[Robert Barlow]

Don't get me started on this - I'll go on for hours! I can see no justification for CC surcharges - Sure there is a cost involved and merchants crap on about that but they forget to mention the benefits such as no cash to handle, few payment problems, etc. Where I have a payment to make online suc as council rates and they want to impose a surcharge I write a cheque and pay it in person when I am passing by. Then they have to use up clerical time to process the instrument.

[jso]

On the issue of cash vs credit card costs.

I would suggest that it costs the same amount for an armed guard to rock up to a store and take $50 cash out of the safe as it does to take $50,000.

But if Amex is charging say 0.5% then their operating costs are going up (fixed cost with cash, increasing cost with increasing sales). The lack of cash could mean a store might ask the armed guard to come every second day or only after the weekend.

I don't agree with the charges being 1%+ for Visa/MC on a normal business (things like charities/computer stores are okay), but I do think that its acceptable that they can charge some additional amount - say 0.5% on Visa/MC and 2% on Amex/Diners.

I certainly don't agree that the fee is there for every transaction (eg wotif/qantas/etc) and there are no other alternatives.