COLES MYER UNDERMINES RESERVE BANK’S CREDIT CARD INTERVENTION JOINT Sydney, 27 March, 2002: Retailer Coles Myer’s announcement yesterday that it would be enhancing its Fly Buys program and connecting a loyalty program to the Coles Myer credit card makes a mockery of the Reserve Bank of Australia’s (RBA) credit card intervention in three key ways:  1.    It undermines the RBA’s claim that merchants don’t benefit from credit card loyalty schemes. If this was so, why is Coles Myer planning to introduce a credit card loyalty scheme as part of their strategic drive to increase profits?  2.    It undermines the claim by the RBA that their reforms will be pro-competitive. By artificially raising the prices paid, and lowering the benefits received, for customers who hold Visa, Mastercard and Bankcard, the RBA’s actions will lead to customers migrating to the Coles Myer Card. This will distort the market.  3.    It facilitates a grab by large retailers of small business sales. Mike Potter, Chief Executive of the Council of Small Business Organisations of Australia (COSBOA), said: “This is a worrying development for small businesses, because the Reserve Bank is trying to eliminate loyalty points from credit cards that small businesses accept for payment. Meanwhile, Coles Myer are planning to introduce a loyalty scheme on its own card.” “In addition, Coles Myer says it’s going to revamp their Fly Buys scheme. These changes will take customers away from small businesses.” David Bell, Chief Executive of the Australian Bankers’ Association (ABA), criticised the RBA for not publishing an economic rationale for their interchange fee proposal. “The Reserve Bank is mandating that many legitimate credit card system costs are not eligible for calculation in the interchange fee.” “The RBA should take an even-handed approach between store cards and open credit cards which compete with each other rather than giving large retailers which issue cards a competitive advantage. The RBA’s interchange fee proposal which applies only to open credit cards makes arbitrary allocations of joint and common costs which hobbles their ability to compete. There is no basis in economics or public policy principles for this approach.” Mr Potter and Mr Bell have committed both their organisations to constructive consultation with the RBA over its proposed intervention, and hope the consultation period realises genuine progress on the outstanding matters, not the least is how to ensure customers of small businesses are not lost to large retailers. For further information contact: Mike Potter CEO  COSBOA Phone: 02 6262 7826 Mobile: 0418 860 519 Heather Wellard ABA PR Phone:02 8298 0411 Mobile: 0409 830 439  ENDS