The Reserve Bank has dropped the ball again on getting banks and global card schemes to disclose how they calculate the total costs borne by retailers for accepting card-based payments under merchant service plans.
In a discussion paper published in November 2019, the RBA raised expectations among retail groups that it would force banks to reveal the extent to which scheme fees contributed to the total monthly cost of merchant plans.
Scheme fees, which are per-transaction fees payable by both acquiring and card issuing banks to card schemes for services they provide, have been a veritable black box in the pricing of merchant plans for decades.
While the global schemes disclose the rates at which interchange fees are calculated, there is no requirement for them to reveal the cost of so-called “scheme fees” which are levied on banks and then passed on to merchants.
Scheme fees are a component of the monthly merchant service fee paid by retailers. Other components of the merchant service fee include interchange fees and bank margins.
In the 2019 paper, the RBA indicated it was concerned about the lack of transparency on scheme fees amid growing evidence that they were being ratcheted higher to counter the impact of reduced interchange fees.
“While schemes publish their schedules of interchange fees, there is far less transparency around scheme fees,” the RBA said in 2019.
“…Information from some stakeholders suggests that scheme fees on acquirers and issuers have been growing over time and represent an increasing proportion of merchant service fees.”
But in a consultation paper released on Friday, the regulator has backed away from imposing a requirement on the banks to be more transparent about merchant pricing.
The RBA has justified taking no action on scheme fees by saying that they constitute “commercially sensitive” information and that their disclosure “could increase the compliance burden of the industry”.
The RBA’s stance is remarkable because it reflects a sentiment that the clear transmission of price signals in the payments market is not an objective worthy of immediate and thorough regulatory attention.
By giving priority to the compliance burden of payments providers, the RBA and its Payments System Board are failing to observe their statutory mandate that require them to intervene in the payments industry when schemes and banks are unable or unwilling to undertake reforms that are necessary in the public interest.
Clear price signals are in the public interest because they are necessary for efficient markets.
While the RBA and the PSB recognise that disclosure of scheme fees in Australia is “opaque” they have shirked their joint obligation to improve the efficiency of the payments system.
The regulator has had plenty of time to nail this issue.
It has been investigating the non-disclosure of scheme fees to retailers and other merchants since 2008 but has never proceeded with any specific regulatory action.
The light touch policy recommendations on scheme fees in the RBA’s latest consultation paper will disappoint most small business groups who were calling on the regulator to streamline the disclosure of merchant services.
Groups such as the Australian Lottery and Newsagents’ Association and the Small Business Council (COSBOA) want the RBA to develop a model code that would standardise the way acquiring banks at the end of each month report costs incurred by merchants for accepting card payments.
“This should allow merchants to determine in the simplest possible way a reasonable range of costs including average interchange rates, scheme fees and acquirer charges appropriate to a sensible range of card-type transactions so that they could compare offers more easily and this would promote competition and switching,” the ALNA said in a submission to the RBA review last year.
Given the RBA’s defiance of its payments mandate, newsagents across the country will likely have to wait at least another four years for the next payments review before the veil of secrecy surrounding the scheme fees they pay is lifted.