Credit card companies have been using misleading tactics to persuade consumers that credit card payment fees need to be high, consumer advocate CHOICE claims.
As regulators try to rein in the excessive fees associated with credit cards, the companies who benefit from these high fees, including Visa, MasterCard and the banks, have been spending huge sums of money trying to prove that high fees are good for consumers.
CHOICE compared this tactic to the historical efforts of big tobacco to prove that smoking was not damaging to your health.
The worst offender, according to CHOICE, is MasterCard, which has been funding a “phoney” campaign against the Reserve Bank of Australia’s plans to clamp down on interchange fee gouging.
Nowhere does the campaign disclose who or what is behind it, but CHOICE claims its sole known funder is MasterCard.
CHOICE campaigns manager Erin Turner called on MasterCard to own up to their involvement in the Don’t Change My Interchange campaign, which is run by the mysterious International Alliance for Electronic Payments (IAEP). Watch the ad below.
“We are warning consumers today against this phoney grassroots movement backed by MasterCard that has been designed to distribute misinformation to the public in an attempt to keep bank fees unnecessarily high,” she said.
“Charging people a small fee to use a credit card, sure. Funding a ‘grassroots’ campaign to rip off credit card holders – priceless.”
The RBA’s plans
The RBA’s planned changes could cut up to $2 billion in interchange fees paid by merchants to banks that issue credit cards.
The proposal has been openly criticised by credit card companies and banking institutions, who do not want to lose the revenue generated by interchange fees.
But CHOICE’s explosive claims have raised more serious questions about the extent of their involvement in the resistance campaign.
“When we looked back at over a decade of debate about interchange issues we found studies and lobby groups funded by MasterCard, Visa or the banking industry that argue that keeping fees high is good for consumers,” said Ms Turner.
“The fact is MasterCard and Visa are two of the major beneficiaries of keeping interchange fees high. Arguing that higher bank fees reward consumers is laughable.”
The consumer advocacy group said credit card companies were using “dirty tactics” to mask their involvement in the reform debate.
What is an interchange fee?
Banks and credit card companies are the big winners when it comes to interchange fees.
The fees are issued between the bank that issued the card and the merchant’s bank when a consumer pays with their credit card.
These fees are set by card companies, like Visa, MasterCard and American Express, but collected by the banks.
Reforms in 2003 limited the average fee that can be applied and provided consumers with a 40 per cent drop in interchange charges – from about 0.95 per cent of the value of each credit card transaction to between 0.55 and 0.6.
The current proposal could see interchange rates decrease to 0.3 per cent.
But competition between card companies for the banks to issue their brand of card sees interchange fees inflated, according to CHOICE.
“The higher the interchange rate, the more attractive it is for a bank to issue a certain scheme’s card,” the group said in a submission to a Senate Standing Committee on Economics.
“Higher interchange fees flow on to higher costs to merchants, which are eventually reflected in higher than necessary consumer prices, paid not only by cardholders but by all consumers.”
Are savings passed on?
This is the key bone of contention according to IAEP.
Apart from vigorously promoting the supposed benefits of interchange fees, which include keeping electronic payments “secure, reliable and convenient”, the group also decries the effectiveness of the reforms.
The changes were widely expected to benefit merchants and consumers, with merchants to face lower service fees and pass this on to the consumer.
But according to IAEP: “consumers saw no reduction in prices from merchants [in previous reforms], but watched the cost of card fees in Australia increase up to 50 per cent”.
CHOICE said it was difficult to put a figure on price changes that followed interchange fee regulation.
“It is likely that some merchants operating in sectors that face little competitive pressure will not pass on the full amount of savings if their card acceptance costs are reduced,” the CHOICE senate submission read.