In a submission to the Reserve Bank (RBA) card payment review, Tyro says that it is now time to eliminate the ‘interchange” fee costs to facilitate the introduction of innovative, efficient and “financially safe new real-time payment solutions”, while also reversing the current decline and risk of disappearance of cheaper domestic card schemes.
Tyro says elimination of the fees will also generally accelerate electronic payment adoption, substituting paper-based methods such as cash and cheques.
According to the Tyro submission, there is a significant productivity potential for Australia, “if it were to take a lead in the digital economy”.
In its submission, Tyro contends that interchange fee proliferation drives excess and unfairness and, by their nature, interchange fees are not transparent and sheltered against competitive pressures.
“No consumer or merchant can negotiate interchange fees except for the two dominant retailers,” Tyro submits.
“The credit card schemes compete to entice issuer banks to issue and promote their card products. The issuer banks’ incentive is to maximise interchange fee revenue. Thus the schemes and the banks game the regulatory framework through proliferation and backward-looking three-year compliance reviews.”
The submission to the RBA also says:
“The vicious circle for the economy and the community has been driven by the schemes and banks proliferating the number of payment card products offering an ever-increasing range of low and high interchange fee and reward variations. This way the schemes and banks can maximise the excess over the regulated average interchange fee cap and they can offer discounted card services to the powerful dominant retailers and expensive card services with attractive rewards to wealthier customers.
“The unfair result is that these discounts and rewards in the hundreds of millions of dollars per year are funded by Australia’s small and medium business merchants and the least affluent consumers. This is a huge transfer of wealth.”
Tyro says it is time to recognise that the current dominant card payment systems have become mature systems, and that while the interchange subsidy may have been appropriate during the establishment phase of the card payment system, it is now “counterproductive in a phase where the acceptance of card payments has become a ubiquitous alternative to cash and cheques”.
Concluding its submission to the RBA, Tyro reiterates that interchange fees for debit cards should be eliminated, “since the consumer is using his own money and resource costs are minimal”.
And, it says that interchange fees for credit cards should also be eliminated, or at least reduced to a maximum of 30 basis points on all types of card transactions.
“For credit cards one could consider a reasonable interchange fee given that merchants do benefit from a credit facility and resource costs are somewhat higher,” it concludes.