Bank fees. Has Chalmers the guts to take on the big banks?
· Michael West
A decision by the RBA’s Payments Systems Board is due at the end of March. Will Treasurer Jim Chalmers back bank fee reform? Michael Sainsbury with the story.
The obscure but powerful Reserve Bank of Australia Payments Systems Board (RBA PSB) met on March 4 for its quarterly meeting to prepare for the biggest changes to Australia’s payments system in nine years after last year’s inquiry into merchant fees.
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The main players in the RBA PSB’s crosshairs are Australia’s big four banking oligopoly, which minted $30B in profits in FY2025, and the US-based card scheme giants Visa and Mastercard, which operate on fat profit margins of around 50%.
Australia’s card payments system is a multi-billion-dollar machine
— generating an estimated $6B annual merchant service fee pool, the total cost retailers pay to accept plastic (or phone taps) and which is passed on to consumers with a ticket clip on top.
According to the RBA, Australian businesses paid card scheme operators approximately $2B in net scheme fees in 2024–25 – an 11% increase on the prior year.
While part of the RBA, the PSB is also a separate statutory authority formed under the 1959 Reserve Bank of Australia Act. It ultimately reports through the central bank to the Federal Treasurer. It is chaired by RBA Governor Michelle Bullock and its board includes RBA Assistant Governor Brad Jones, APRA chief John Lonsdale (deputy chair) and ACCC chief Gina Cass-Gottlieb.
Further representatives from industry are appointed by the Treasurer for five year terms: Ross Buckley, Professor of International Finance Law at UNSW; Michelle Deaker, managing partner at venture capital firm OneVentures; Scott Farrell, partner at law firm King & Wood Mallesons and former author of the government’s strategic payments plan, and Deborah Ralston, a finance professor and banking policy expert.
Surcharge bonanza
Wednesday’s meeting was the group’s last before it plans to finalise its decision on proposed bans or limits for surcharges on debit and credit cards, as well as a sharp cut to interchange rates.
Interchange fees are fees paid on each card transaction from the merchant’s bank (the acquirer) to the Visa or Mastercard holder’s bank (the issuer).
The merchant pays a bundled “merchant service fee” to its acquirer/PSP, which is split into three parts: (1) interchange, typically the largest slice, flows to the issuing bank to cover credit risk, fraud, funding costs and rewards; (2) scheme (network) fees, paid to Visa/Mastercard for operating the global rails, brand, rules, security standards and processing infrastructure; and (3) the acquirer/PSP margin for gateway, authorisation, settlement and merchant support.
According to the Reserve Bank of Australia’s consultation paper on merchant card payment costs and surcharging, interchange fees paid by acquirers to issuing banks amounted to about $1.5B in 2023/24, accounting for around 65% of the cost of credit card transactions.
Net scheme fees (fees paid by issuers and acquirers to networks such as Visa, Mastercard and EFTPOS were about $1.8B in the same year, with most borne by acquirers and passed on to merchants.
The remainder — roughly $2.4–2.7B — reflects acquirer and payment service provider (PSP) margins, as well as other costs embedded in merchant plans. Issuing banks thus receive the bulk of interchange receipts, schemes collect network fees for operating the rails and providing infrastructure, and acquirers/PSPs retain the balance as their margin for processing and support.
Proposed changes
The RBA is now proposing a three-pronged overhaul of the payments system to tackle high costs and improve transparency.
Under draft reforms issued last year, the RBA proposed reducing interchange fee caps — lowering the domestic credit card cap to 0.3 % of transaction value – from its current ‘cap’ of 0.8% and cutting the domestic debit benchmark and cap to 6 cents (or 0.12 %).
It also wants to clean up long-standing high-margin loopholes and introduce caps on interchange fees for foreign-issued cards (e.g. 0.2 % for in-person debit and 0.4 % for in-person credit; higher caps for online transactions) and amend net compensation rules so all Australian issuers (including those sponsored by overseas banks) are captured.
This will hit revenue at the banks, smaller PSPs and the card scheme duopoly.
Former LNP minister Simon Birmingham last year stepped into the role of chief of the big banks lobby group the Australian Banking Association, left vacant by long-term incumbent Anna Bligh.
Birmingham has stated, “The RBA’s own data shows interchange fees in Australia are already among the lowest in the world”. Although that’s contested, he went on to threaten, “Driving them down further would put further pressure on household budgets through higher card fees, shorter interest-free periods and diminished rewards.”
Interchange fees by country (2022). Source: clearlypayments.com
But Birmo was prepared to throw the card operators under the bus: “These companies do not build or maintain the roads that Australia’s commerce runs on, yet
they place their own toll booths at key intersections.”
Small business relief
Small businesses are hoping for some relief on credit card surcharging, arguing that they otherwise are continuing to subsidise big retailers who get cut-price deals on interchange from the banks and special treatment from the card operators.
Last week a House Economics Committee inquiry into scheme and digital wallets heard all sorts of fanciful claims from the taxpayer backed bank and Visa and Mastercard – neither of which pays anything but pocket change in tax in Australia on revenues ofBs of dollars.
The Independent Payments Forum (IPF), which represents a range of small business groups, told the RBA that the draft options “fail small businesses” by ignoring the fundamental imbalance where
smaller merchants pay 300–400 % higher fees than big players.
IPF said a blanket ban on surcharging “would expose many thousands more small businesses to these fees levied by banks, PSPs and card schemes, leading to reduced ability to compete with big business and higher prices for all consumers, including those who use cash.”
International regulations
International precedents show that regulators are intervening in scheme pricing, capping interchange and demanding transparency.
The European Commission’s Interchange Fee Regulation caps interchange on consumer debit and credit transactions — typically around 0.2 % for debit and 0.3 % for credit — and prohibits excessive multilateral interchange, a model that Australia’s RBA looks to as an example.
Visa and Mastercard voluntarily align with the EU caps post‑Brexit in the UK, and regulators there have mandated greater transparency and competition measures, including requirements on scheme pricing disclosure similar to Australia’s proposed transparency steps.
The Commerce Commission of New Zealand is moving toward differential interchange caps on foreign‑issued cards and is evaluating least‑cost routing and pricing transparency measures to help small merchants manage fees.
Following its meeting on Wednesday, the PSB issued the following advice as part of its regular quarterly update:
‘The Board discussed the evidence and public interest case for amending the regulation of card systems. In particular, the Board discussed the relative merits of options on card payment surcharging, interchange fee regulation and transparency of card payment fees. Members agreed to publish, by the end of March, a Conclusions Paper and an implementation timeline for any regulatory action.”
Treasurer Jim Chalmers has the last say, and after the RBA’s draft decision promised these reforms will save consumers $1.2B, but will he finally have the guts to take on one of the Western world’s most successful and profitable oligopolies?
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