While the Reserve Bank of Australia (RBA) has regulated the rate that credit card schemes and banks may charge each other, this does not affect the rate that a merchant (travel agent) can charge the consumer.
That’s one of a number of points brought out in a statement issued yesterday by the Australian Federation of Travel Agents (AFTA).
The RBA’s move on credit card surcharges, and ACCC’s reaction, were announced last week. See: ACCC to crack down on surcharges but nothing sudden
The AFTA statement released yesterday continues:
The Standards cover all aspects of the electronic payment system including payments between card schemes and banks and what can be included in a merchant’s surcharge. Merchants being travel agents and travel businesses across the entire travel value chain. Importantly, this new standard applies to all categories who surcharge customers for using credit cards, not just the travel industry.
The new Standards mean Visa, MasterCard and American Express companion (Amex and Bank co-branded cards) card schemes will be more tightly regulated. The new Standards continue to regulate the payments between banks and the card schemes called interchange fees.
The RBA has regulated the rate that the card schemes and the banks may charge each other but not the rate that a merchant (travel agent) can charge the consumer. This is a VERY IMPORTANT aspect to these new arrangements. The CAP applies to the BANK and the CARD SCHEME. This cap is set at a rate of 0.8% or 80 basis points (bp) with an average of 0.5% (50bp) and travel agents will see a rate charged to them of a higher amount from the bank that provides the merchant services.
Businesses will retain the right to impose a cost-based surcharge on card payments. Any surcharge will be limited to the amount it costs the merchant to accept that type of card for that transaction as advised by the bank.
While large business will need to change review and update their surcharges by 1 September 2016, 95% of AFTA members will not be required to make any changes to the way the currently surcharge until 1 September 2017. This is because only 5% of the travel agencies will turn over more $25m million, have more than 50 employees or more than $12.5m in gross assets will be classified as a large business (satisfies at least two of the aforementioned classifications). Small businesses will be contacted by their banks and payment facilitator following the introduction of new easy to understand statements issued by banks which will detail what rate they are allowed to surcharge consumers. This new procedure will assist merchants (travel agents) in knowing that the rate of surcharge is for each card scheme that the merchant (travel agent) accepts.
Importantly there are five additional allowable costs that can be applied to the rate at which a merchant (travel agent) charges the consumer and these can be found on the www.afta.com.au.
AFTA notes there have been media reports that the cap for surcharging will be 0.5% (50bp) commencing 1 July 2016. This is incorrect as this figure relates to the interchange payments between banks and the card schemes such as Visa, MasterCard and bank issued American Express and not the rate that the merchant can charge the consumer.
Jayson Westbury, CEO of AFTA announced “that AFTA is working with card schemes, banks and payment facilitators to ensure travel agents are not disadvantaged in these transition arrangements. AFTA has updated its member advice on surcharging with easy to understand information on this complex issue and provided it to all members and the industry at large via the AFTA website”.
“The new cap on interchange fees should see a decrease in the merchant rate charged to travel agents, which is the government’s policy hope for these new regulations, that merchant fees are lower for consumers” Mr Westbury said.
“Third party chargebacks from consumers who suffer loss as a result of supplier failure has been addressed in these new regulations by way of the insurance coverage allowable found in the detail of the regulation, this is a first step to addressing this long standing problem for the travel industry” said Mr Westbury.
“Travel agents will be able to take out appropriate insurance to mitigate their risk against third party chargeback and be able to recoup these costs by applying a factor to the merchant rate they pass on to consumers, if they choose to do this” said Mr Westbury.
“We are very pleased that surcharging remains intact for the travel industry and that this cost of doing business can remain as a cost that can be passed onto the consumer going forward” said Mr Westbury.