Business - Interchange fees

Tomorrow the Reserve Bank will rule what will happen about interchange fees.

Interchange fees are fees charged to the merchant for EFTpos by the payment network.

The trouble with these fees are two fold. The first one is by world standards these fees are fairly high. As the Australian economy is not that large in world terms and is relatively detached so there is no competition for EFTpos so meaning that its a monopoly and these fees must be paid as few retailers can realistically refuse to accept Eftpos in Australia. The second problem is that Australia it is dominated by a few huge retailers who do not pay these interchange fees, so giving them a significant marketing advantage over every other merchant.

There are three options the Reserve Bank can take.

1) They may decide to cap these fees which is what the European Union did for most cards.
2) Abolish them
3) Do nothing.

My preference would be (2) abolish them and make the banks charge the consumers directly. If you think about it, the consumer is paying these fees now, its just hidden. By doing it direct this would make it a level field for all business and organisations. It would also make these fees open and also competitive as the consumer would be able to shop between the banks for the best rates.

Whatever the Reserve Bank decision is, it will have a direct bearing on surcharges. If the Reserve Bank decides to abolish the interchange fees, there will be significant pressure to force retailers to get rid of surcharges that the consumers do not like.

The other issue is that is not going to be addressed tomorrow are many merchants are supplied under long-term contracts and discover soon they have with their EFTpos and credit facilities extra fees and conditions that were not expecting. Then they discover over time that their equipment is old technology. This is particularly a worry true as smartphones are now replacing credit cards, and many of the existing machines cannot handle smartphones credit card handling.

My advise to any retailer is not to sign any long-term contracts. It can be done. Our EFTpos and credit rates, I think are on a good rate, and we are not under contract.