COMPETITION IN BANKING HAS REDUCED BUSINESS COSTS - MERCHANTS PAYING LESS IN MERCHANT SERVICE FEES ON CREDIT CARDS

Sydney, 15 July, 2004: The Reserve Bank Bulletin article on credit card reform published today is strong evidence that competition in banking is benefiting Australian businesses.

Banks have passed through $430 million dollars (annual rate) in the form of lower merchant services fees (MSFs) as a result of a 35 basis points reduction in the credit card interchange fee.

This degree of pass through demonstrates strong competition between banks in credit card acquiring[1]. This is evidence that proposed reforms to EFTPOS and ATM interchange fees will also flow through to retail banking customers[2].

The main findings of the Reserve Bank report are:

·         Since March 2003, the average MSF has fallen by a further 0.35 of a percentage point to around 1.05%;

·         This bring the cumulative decline since 1999 to around ¾ of a percentage point, which represents a  fall of more than 40% in the average MSF;

·         Banks introduced the reductions in MSFs with little delay;

·         Merchants have reported offers of MSF reductions from their banks;

·         Large and small businesses have benefited but because there was more scope for reducing small merchants’ MSFs, those who have shopped around appear to have done relatively well;

·         While there has been some increase in other charges to merchants (terminal fees, charges for paper and chargebacks) the increase has been substantially outweighed by the reduction in MSFs.

The credit card interchange fee reductions started in October 2003, resulting roughly in a halving of the Visa, MasterCard and Bankcard interchange fee.

This was one plank of the wider retail payments reform agenda initiated by the Reserve Bank and the Australian Competition and Consumer Commission (ACCC) in October 2000 when they released the reform blueprint, known as the Joint Study.

Banks have played their role in the reform process, now the extent to which credit card interchange fee reductions will flow through to consumers depends on competition in retailing. It is up to retailers to support their previous claims that lower interchange fees will lead to lower prices at the checkout.

It should be noted that, as foreshadowed by the Reserve Bank, the reduction in the interchange fee has resulted in lower MSFs for retailers but another consequence is higher fees, or less benefits, for credit card holders.

For further information:

Heather Wellard

ABA Public Relations

Phone: 02 8298 0411

Mobile: 0409 830 439

ENDS