Small business could save $550 million on interchange fees as RBA mulls a move on charges

Small businesses and consumers could save over $500 million a year on fees if the amount banks are allowed to charge for processing credit and debit card transactions is lowered.

The Reserve Bank of Australia will today meet in Sydney to discuss changes to interchange fees, the bank-to-bank fee a merchant’s bank pays to a customer’s bank for certain transactions.

The RBA will consult with a range of stakeholders, including the major banks and payment providers who are strongly against any change, regarding a range of potential measures, including lowering and capping of interchange fees.

Lowering the interchange fee on credit cards from a current average of 0.5% to a hard cap of 0.3% – in line with fees in the European Union – would cut bank fees by $550 million, according to payment provider Tyro Payments.

Andrew Rothwell, co-founder of Tyro, told SmartCompany he would ideally like to see the RBA drop interchange fees to “exactly zero”.

“I think merchants shouldn’t have to pay for the privilege of accepting Visa or MasterCard, just to route an authorisation through to the banks,” he says.

Rothwell says because the interchange costs are built into goods and services, small businesses and those consumers with “garden variety” cards end up paying for the “bells and whistles” of the reward programs attached to platinum cards.

“These interchange fees actually underwrite the cost of reward card programs,” he says.

Rothwell also claims some small businesses are paying up to 10 times more for interchange fees than big retailers.

“The big retailers get a special interchange rate that applies to every single credit card or debit card pumped through their network,” he says.

“The costs are just too high for some small businesses. Think about a low margin business with a margin of 7% or 10%. With a fee of 2-3%, that chews right into their profit.”

Rothwell says if interchange fees were scrapped, there would be no need for SMEs to charge card surcharges, which would undoubtedly drive more customers through the doors.

Erin Turner, campaign manager for CHOICE, which is mounting a campaign against such fees, told SmartCompany any cut the RBA decides on today would be a win for small business and the consumers who shop with them.

“Anything the RBA does to lower interchange fees will be a saving,” Turner says.

Turner says not all interchange fees are regulated and change depending on the bank, the merchant and the type of card used, meaning there is “significant room” for various savings, depending on the RBA’s decision.

Turner says the banks and payment providers such as Visa and MasterCard have strongly campaigned against any change.

“Reducing the interchange fee will reduce the cost of payment banks get, and only the banks are concerned about that,” says Turner.

“They are clearly looking to protect their own interests.”