Banning excessive card fees won’t hurt start-ups, expert says

The Reserve Bank is considering a plan to ban businesses from imposing excessive credit card charges on customers, but an expert says the move wouldn’t affect many small businesses.

Under plans being developed by the RBA, credit card providers such as Mastercard and Visa will be able to restrict the amount businesses charge customers for transactions on their cards.

According to RBA assistant governor Malcolm Edey, a draft revision of surcharging standards is in the final stage of consultation.

Dr Edey said yesterday the new standard would limit the surcharge imposed on customers, though it may not necessarily be capped at the cost of the transaction.

Credit card providers would be able to take action against businesses that imposed excessive surcharges on customers, while still allowing businesses to recoup the costs of transaction.

“In that way, I think it strikes a reasonable balance and it should strengthen the incentive for schemes to compete in lowering their fees to merchants,” Edey said.

But Peter Strong, executive director of the Council of Small Business of Australia, says most small businesses already refrain from imposing excessive credit card charges.

“If smaller retailers charge too much, they know customers won’t come to them, so a lot of them don’t even do it,” Strong told StartupSmart.

Strong says, if anything, small businesses should be exempt from the scheme.

However, according to Edey, there is anecdotal evidence that some businesses are imposing a surcharge above the cost of the transaction.

He said some businesses levy the same fee on consumers for low-cost cards as those with high-cost cards, while others impose a surcharge that is simply well above the cost of the transaction.

“Although these practices do not appear to be widespread, they are of concern from a payments-efficiency point of view because they can distort consumer choices about the payment methods that they use,” Edey said.

“They go against the principle… of allowing the efficient flow of price signals to the economic decision-maker.”

“It is for these reasons that the [Reserve] Bank reopened consideration of the surcharging standard last year.”