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Australian credit cards: issuers' interchange plea likely to fall on deaf ears

17th March 2006
By Staff Writer

In 2003 the Reserve Bank of Australia (RBA) enforced reforms to the credit card payment system, which reduced interchange fees. Visa and the Australian Bankers Association (ABA) are now hoping for a review of the reforms arguing that consumers could suffer in future. However, it can be argued that the changes have actually benefited consumers and therefore the RBA is unlikely to order a review.

On the March 14, 2006, the Melbourne Business School was host to a conference sponsored by Visa and the ABA, The Age newspaper reported. Delegates were informed that the reforms introduced to Australian interchange fees by the RBA in 2003 were "crude and unjustifiable" and market forces were misaligned as a result.

In 2003, Visa unsuccessfully challenged the reforms from the point of view of networks and issuers. Now the company is trying again having readjusted its strategy to argue in defense of the consumer. Visa suggests that when the RBA decided to reduce the fees it did not accurately take into account the cost of future investments. Visa argues that this may reduce accessibility to credit because of the lack of funds available to maintain point of sale terminals. Therefore, customers will suffer due to the lack of infrastructure and ability to use their credit card.

Adding weight to Visa's argument were speakers at the conference who suggested that the number of credit card transactions grew by just 6% last year, somewhat down from the 20-30% growth rates of preceding years.

And the argument for a review of interchange reforms is further supported by a joint paper from Access Economics and Melbourne Business School, which suggests that plastic cards have lower risks for the consumer than cash and cheques.

The RBA's assistant governor Phillip Lowe has hit back by commenting that its research showed that credit cards were a high cost form of payment relative to the Eftpos debit card payment system.

Visa and ABA's argument focuses on the negative impact upon cardholders. However, while loyalty programs have mostly diminished since the reforms it is worth noting that the greater choice of credit cards now available to Australians is a benefit.

Consumers can now pick a card that suits their financial needs and this positive attribute will ultimately outweigh any possible threats suggested by Visa and ABA. It is therefore unlikely that the RBA will review interchange reforms based upon this 'consumer' argument.

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