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 on the heels of RBA Governor Michele Bullock’s criticism of banks and credit card providers for their opposition to the bank’s proposals.
The RBA aims to eliminate surcharges imposed by merchants on card payments, a move it estimates could save shoppers $1.2 billion annually. Additionally, the RBA plans to lower the cap on interchange fees that businesses must pay to payment service providers, including fintech companies like Square, as well as banks that offer terminal technology. This could result in a $900 million reduction in income 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 interchange fee reductions might hinder future technology and anti-fraud developments, areas where Australia is currently a global leader. Tranchini emphasized the distinction between maintaining current fraud control investments and the need for future investments to advance the entire payments system.
“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,” she said.
Tranchini highlighted that the Australian payments ecosystem is projected to require $2 billion annually over the next two to three years to prepare for the next wave of innovation. This investment is crucial for enhancing security alongside technological advancements.
Emerging Technologies at Risk
Among the innovations potentially affected 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 like milk, order the product, and ensure its secure delivery.
“That seems like a really great experience. It gets delivered to my house without me even having to think twice,” Tranchini explained. “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.”
Challenges for Small Businesses
Tranchini also noted that small businesses using corporate credit cards might face difficulties accessing credit lines if interchange fees are reduced excessively. She suggested the RBA consider differentiating interchange fees between credit and debit cards to mitigate potential negative impacts.
The debate over interchange fees has also spotlighted how major banks and card providers attract customers by offering frequent flyer points. Recently, Qantas reminded customers of the opportunity to earn up to 120,000 points with a Westpac Altitude Qantas Black credit card.
Frequent Flyer Points and Consumer Subsidies
Governor Bullock acknowledged that the decision to cut such incentives rests with card providers. However, she argued that frequent flyer point schemes are subsidized by consumers, particularly younger and lower-income 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 stated.
In previous testimony, Commonwealth Bank CEO Matt Comyn revealed that “more than 90 per cent of the economics” the bank gains from interchange fees are returned to customers through rewards, often via the purchase of frequent flyer points.
Looking Ahead
The RBA’s proposed fee cuts represent a significant shift in Australia’s payment landscape, with potential ramifications for consumers, businesses, and technological progress. As the debate continues, stakeholders will need to balance cost savings with the need to foster innovation and maintain robust security measures.
As the situation evolves, it remains to be seen how these proposed changes will be implemented and what adjustments banks and card providers might make in response. The ongoing dialogue between the RBA, financial institutions, and consumer advocates will be crucial in shaping the future of Australia’s payments ecosystem.
