Plans by the Reserve Bank of Australia (RBA) to reduce fees on credit and debit card transactions could inadvertently harm Australian consumers and stifle technological advancements, according to Visa, one of the world’s largest card companies. This warning comes shortly after RBA Governor Michele Bullock criticized banks and credit card providers for opposing the bank’s proposed changes.
The RBA aims to eliminate surcharges imposed by some merchants on card payments, a move it believes will save Australian shoppers $1.2 billion annually. Additionally, the RBA seeks to lower the cap on interchange fees that businesses pay to payment service providers, including fintech companies like Square, as well as banks that supply terminal technology. The proposed changes could result in a $900 million income reduction for banks and card providers.
Potential Impact on Innovation and Security
Visa Australia’s head of client engagement, Ivana Tranchini, expressed concerns that the RBA’s plan to cut interchange fees could impede the development of new technology and anti-fraud measures, areas where Australia is currently a global leader. She highlighted the distinction between maintaining current fraud control investments and funding the next generation of anti-fraud systems, which are essential for enhancing the entire payments infrastructure.
“We are one of the most highly penetrated markets for contactless payments in the world, so we can pretty much go anywhere from Sydney to Coonabarabran, and you can tap your mobile phone. In the US, you can’t do that,” Tranchini noted.
Tranchini emphasized the need for ongoing investment in innovation, estimating that the Australian payments ecosystem would require $2 billion annually over the next two to three years to prepare for future advancements. She stressed that these innovations must be accompanied by robust security measures.
The Future of Shopping: Agent-Led Commerce
One of the innovations at risk, according to Tranchini, is “agent-led commerce,” where artificial intelligence (AI) could automate routine shopping tasks. For instance, AI could detect when a household is low on essentials, order the items, pay for them, and arrange delivery, all without human intervention.
“That seems like a really great experience. It gets delivered to my house without me even having to think twice,” Tranchini said. “But there’s a lot that goes into making that experience happen to ensure it’s secure, to ensure that it’s authenticated, to make sure that the agents do what they said they were going to do.”
She also warned that small businesses using corporate credit cards might struggle to access credit lines if interchange fees are reduced excessively. Tranchini suggested the RBA consider different interchange fees for credit and debit cards to mitigate this issue.
Interchange Fee Debate and Consumer Incentives
The debate over interchange fees has also brought attention to how banks and card providers attract customers by offering frequent flyer points for purchases. Recently, Qantas reminded its customers they could earn up to 120,000 points with a Westpac Altitude Qantas Black credit card.
Governor Bullock has stated that reducing such incentives is a decision for card providers, but she argues that consumers earning frequent flyer points are subsidized by others—typically lower-income and younger individuals—who primarily use debit cards.
“It’s funding people who are wealthier, higher incomes to get loyalty points. Who is paying those high prices? It’s the consumers that don’t use the credit cards, which are younger people, people [who use] debit cards,” Bullock explained.
In testimony to a committee last year, Commonwealth Bank CEO Matt Comyn acknowledged that “more than 90 per cent of the economics” the bank receives from interchange fees are returned to customers through points and often through the purchase of frequent flyer points.
Looking Forward
The RBA’s proposed fee cuts are part of a broader effort to make financial transactions more affordable for consumers. However, Visa and other stakeholders caution that the changes could have unintended consequences, potentially hindering technological progress and affecting small businesses. As the debate continues, the RBA and financial institutions must balance consumer savings with the need for innovation and security in Australia’s payments ecosystem.
