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Bank Rip-Offs Revealed - Click
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As of 19-May-2003, a six week battle has begun in the Federal Court between the Reserve Bank of Australia (RBA) and the US based MasterCard and Visa International.
Towards the end of 2002, the RBA imposed a number of reforms upon Australia’s banks. These included:
Interchange fees are the fees which the banks charge merchants for credit card purchases. For example, where a consumer makes a purchase with their Westpac credit card at a retailer which uses the Commonwealth Bank (CBA) for their banking, an interchange fee will be levied upon the retailer. This fee will be to recover the cost of the charge to the CBA, made by Westpac, for the inter-bank funds transfer for the purchase. The average charge per transaction imposed upon a merchant is around $2.70. Banks also charge each other interchange fees on ATM transactions performed at each other’s terminals.
According to a joint report issued by the RBA and the Australian Competition and Consumer Commission (ACCC), the problem is that the fees that the banks are charging each other are far in excess of the real costs involved for the transaction. As these fees are then passed on to the retailer, it is really consumers who end up paying for the banks' annual $600 million revenue windfall made from these fees via higher prices on their purchases.
Although the interchange cut won’t come into effect until October 2003, the banks have already compensated for any lost revenue by jacking up their annual card fees. For example, in 2002 the ANZ was charging an annual $27 "Credit Card Account Fee" plus a $33 "Reward Program Services Fee" on it’s popular ANZ Qantas Visa Card. By 2003, they had jacked these up to $40 and $55 respectively, a whopping 59% fee hike.
Catherine Wolthuizen, the Australian Consumers' Association's financial services policy officer, stated that some businesses have also complained of increases in their "merchant service fees", the fees they are charged by the banks for the use of card swiping facilities.
This is clearly a case of the banks double-dipping, as their revenue from interchange fees imposed upon merchants will remain undiminished until October 2003.
Obviously the reason that MasterCard and Visa International are challenging the RBA’s reforms in court is because of the loss of business they will likely incur. By the RBA allowing merchants to surcharge customers for purchases made with a credit card, many will be encouraged to leave their credit cards at home and to use debit cards, eftpos or cash instead.
Also, allowing non-bank entrants access to the MasterCard and Visa brands will promote greater competition and more competitive fee structures, thereby putting pressure on the banks to follow suit.
The outcome from the court hearings is not expected to be known for several months.
At this stage we have heard that Qantas plans to charge customers an extra 1% from 01-Jul-2003 for flights booked using any credit card other than those it co-brands. Caltex has also allowed its independent franchisees to apply credit card usage charges.
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