Robbie MacDiarmid campaigns for 'visibility of scheme fees'
Australian retailers are being warned to monitor their monthly merchant service plan statements amid concern that banks have begun to pass on fresh fee hikes.
CMSPI, a leading international consultant on merchant cost management, last week alerted 40 Australian retailers to the potential for runaway growth in so-called “scheme fees” as banks and global card companies try to boost revenue from merchant customers.
In an online briefing of local merchants, CMSPI warned that the lack of disclosure by banks and global card schemes about scheme fees meant that they were being used to recoup revenue that had been lost because of the introduction of caps on interchange rates for debit and credit card transactions.
Scheme fees are payable by acquiring and card issuing banks to global card schemes such as Visa and Mastercard for various services they provide.
The Reserve Bank is currently considering whether banks should be forced to disclose such fees because they are mostly included in the monthly service costs borne by retailers.
CMSPI, which advises a wide range of Australian retailers including Shaver Shop, BP and Subway, believes the global card companies are expanding the number of scheme fees levied on Australian banks and that they are being passed through to merchants.
However, the lack of disclosure about the reasons for different scheme fees means that retailers are limited in their ability to detect and evaluate increases.
Robbie MacDiarmid, the head of CMSPI’s Asia Pacific operations, said Mastercard introduced some scheme fee increases in Australia in April.
“When schemes increase scheme fees as occurred in April, acquirers try to make a complex calculation of hundreds of different line items to figure out what an individual merchant’s share of the scheme fee might be,” he told Banking Day.
“It’s actually impossible to do in practice and this is the reason three of our Australian merchant clients saw different increases in their scheme fees this year.”
CMSPI is also concerned that several Australian banks are about to exploit changes in the scheme fees of Mastercard and Visa to justify disproportionate fee increases on merchants.
“Some banks are proposing big fee increases in Australia and will use scheme fee rises potentially as the justification,” he said.
“But ultimately they could go well beyond what that scheme fee increase has been when passing it through to merchants.”
For more than a decade the RBA has aired concerns about the lack of transparency of scheme fees, including in its preliminary report on retail payments published in May.
“The board has held concerns for some time about the opacity of scheme fee arrangements to end-users of the payments system, with some indications that this has allowed for scheme fees to increase over recent years,” the regulator states in its May report.
“The opacity could also, in principle, make it easier for schemes to implement fees or rules that may be anti-competitive or have the effect of circumventing the bank’s interchange fee regulation.”
The RBA is now finalising its reform agenda stemming from the payments review and has already indicated it wants the global card companies to notify it “promptly” when changes to scheme fees occur.
The regulator is also proposing to publish aggregated data each year that would give merchants a general impression of movements in scheme fees across the market as a whole.
MacDiarmid welcomed moves to improve disclosure of the fees, saying that transparency was necessary for merchants to understand their real costs of accepting card-based payments in-store and online.
“More visibility of scheme fees would be fantastic – merchants would then be able to identify scheme fees as they can do with interchange pricing today,” he said.
“If we don’t get that visibility the best that merchants can do is go to market every couple of years or so and get the scheme fee proposals from acquiring banks and then build them into their merchant contracts.
“Otherwise, merchants need to also make sure they are auditing and challenging any scheme fee increases that are suggested by acquirers.”