Industry thumbs down for FSI excessive surcharging solution

Payment industry submissions to a Reserve Bank review of card payments regulation have urged the RBA not to adopt the Financial System Inquiry's recommended solution to the problem of excessive surcharging.

The Payment System Board of the RBA included the FSI recommendation in an issues paper currently under discussion.

The FSI said surcharging could improve the efficiency of the payments system by providing accurate price signals to customers on the cost of using different payment methods. It supported the principle that merchants can surcharge to reflect their relative costs of accepting different payment methods.

However, it acknowledged the high level of consumer dissatisfaction with excessive surcharging (5000 submissions were on the topic) and recommended that appropriate levels of surcharging could be achieved by providing merchants with clearer surcharging limits.

It recommended a three-tiered approach: low cost system providers (such as systems subject to debit interchange fee caps) should have the right to prevent merchants from surcharging; medium cost providers (such as systems subject to credit interchange fee caps) should be required to apply surcharge limits set by the PSB; and higher cost, unregulated system providers should continue to apply reasonable cost recovery rules.

The PSB is not all that concerned about excessive surcharging. In its issues paper it refers to the RBA's 2013 Consumer Use Survey, which found that surcharges were paid on only around four per cent of transactions.

However, it acknowledged that excessive surcharging was a concern for "many stakeholders".

The PSB endorsement of the FSI recommendation has not been well received.

The Australian Payments Clearing Association said the three-tiered approach appeared "complex and potentially difficult to implement."

APCA said the real problem was in monitoring and enforcement - a view echoed in a number of other submissions.

The Consumer Action Law Centre said excessive surcharging would continue, despite the proposed changes, unless a regulator was made responsible for enforcement.

"Without regulatory oversight, rules designed to limit surcharging are likely to be widely ignored," CALC said.

The Australian Bankers Association said: "Excessive surcharging is a potential indicator of the misuse of market power, rather than an underlying payments regulation issue, and should be referred to the ACCC."

The ABA said a simple cap or upper limit might be a useful compromise but not the three-tiered arrangement.

American Express said: "The proposed three-tiered surcharging standard is overly complex and requires the RBA to choose a limit for the 'medium cost' tier, which will ensure almost all merchants either under or over-recover their card acceptance costs."

Visa said that if surcharging was to be allowed to continue, surcharging on debit transactions should be prohibited. On that basis Visa supported the FSI's tier one.

It said tier two would have the effect of forcing several industries to cut their surcharging levels. However, it warned that the establishment of a cap might encourage some merchants to start surcharging.

Visa said: "Regardless of the approach taken, it is critical that the position be enforceable. We strongly support enforceability of any policy approach, via empowering a statutory body with powers to monitor and enforce surcharging rules in Australia."