Reserve Bank to cap card charges

THE Reserve Bank could decide as soon as tomorrow to fix a $700 million-a-year credit card rip-off of its own creation.

The bank's payments system board, which includes governor Glenn Stevens, meets in Sydney tomorrow and is expected to sign off on surcharging caps.

Merchants - the airline and taxi industries in particular - have been accused of ripping off consumers by charging them significantly more than it costs them to use cards.

Consumers pay an average surcharge of nearly 2 per cent, while merchants pay 1 per cent.

In 2003, the bank removed a ban on surcharges hoping to send cardholders "price signals'' about the relative cost of different payment methods. It didn't anticipate some merchants would profit, as Choice and other consumer advocates have claimed.

"There are segments of the merchant community that have gone for it. I think that has caught the Reserve Bank somewhat by surprise,'' said Paul Dowling, principal partner at East & Partners, which has done research for the Reserve Bank in this area.

According to leading credit card consultant Mike Ebstein, three-tenths of the $243 billion-a-year spent on plastic attracts a surcharge, equating to a $700 million-plus profit annually. ``It's in the hundreds of millions of dollars,'' said Mr Ebstein, who the bank called in for discussions as part of the review it began in June 2011.

The bank was concerned about "excessive'' surcharging and ``blended'' surcharging - imposing the same fee for Visa, Mastercard, American Express and Diners even though the cost of accepting the latter two is more than double the former two.

Qantas applies a flat fee that can add 8 per cent to a flight to Tamworth or Fiji. Cabcharge slugs taxi users 10 per cent.

Qantas has said it is against change and denies profiteering. Cabcharge has not commented. Visa and Mastercard would like the surcharge ban reinstated.

A system that caps fees is expected to be introduced.

Mr Ebstein said "they will tie the surcharge to the fee'' and "disallow'' blending.

For Mastercard and Visa, the likely surcharge cap would be ``a little bit more'' than the 0.8-0.9 per cent they charge merchants, he said.

Mr Dowling said the cap would likely be 1.2-1.3 per cent.

He predicted blending would be allowed because prohibiting it would ``make life hell'' for smaller merchants.