RBA looks at more affordable electronic payments

Despite changes to interchange fee regulations earlier this year, small businesses and Australian consumers are still paying more for the convenience of electronic payments, according to the Reserve Bank of Australia (RBA), indicating that some acquiring banks are yet to pass on their savings on interchange costs.

Speaking at the 2017 Australian Payment Summit, RBA head of payments policy, Tony Richards, went over some of the data around the cost of electronic payments to merchants, and its impact on everyday Australians.

Electronic payments costing more for small business

Looking at data gathered over the 2016/17 financial year (prior to the interchange fee changes), it was found that eftpos payments were the least expensive electronic payment option for merchants, followed by MasterCard and Visa debit, MasterCard and Visa credit, and Unionpay, due to the difference in interchange fees for these systems.

However, even eftpos was found to be expensive for some merchants to provide, such as coffee shops where the value of each individual transaction tends to be lower.

This was reflective of a wider trend where smaller merchants were experiencing higher average payment costs than larger merchants, for reasons including: 

  • Merchants with smaller transaction volumes may struggle to manage the fixed costs associated with providing payment services.
  • Smaller merchants may have less bargaining power with acquirers.
  • Smaller merchants are less likely to benefit from strategic or preferred interchange rates from card schemes.
  • Smaller merchants may be less financially sophisticated and may not always choose, or be offered, plans from their acquiring banks that would minimise their payment costs.

While not as much data was available in the post-interchange fee period, it was found that there has been some narrowing in the cost to merchants of eftpos and Visa/MasterCard debit schemes. However, a significant difference remains between the two, indicating that savings on interchange costs due to the new regulations may not yet be being passed through by acquirer banks.

Tap & go – the cost of convenience

One factor potentially contributing to the higher payment costs being copped by smaller businesses is the current arrangement of tap and go payment systems.

Many of these contactless payment terminals are currently set up to automatically route payments through the international MasterCard or Visa networks, rather than the local eftpos network, even for non-credit transactions.

And due to the convenience of tap and go payments, the popularity of these systems can push up their potential cost to small business. 

The higher merchant costs associated with these transactions can result in Australian shoppers being charged higher prices, or having to pay surcharges or minimum transaction values when making electronic payments.  

Least-cost payments

Many merchants have begun calling for least-cost payments, where electronic payment terminals are set up to automatically route digital payments through whatever channels will charge the fewest fees to the merchants .

According to Mr Richards, the RBA has been in discussions with consumer organisations and the Australian Competition and Consumer Commission (ACCC) around implementing least cost routing, in the interest of providing fairness to Australian small businesses and shoppers.

Recent meetings of the Payment Systems Board have recommended that banks be required to give merchants the ability to send tap-and-go payments from dual-network debit cards through the channel of their choice, with regulation to this effect to occur if the banks have not facilitated this recommendation by 1 April 2018.

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Learn more about credit cards

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

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What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How long does it take to get a credit card?

There are a few stages you need to go through to get a credit card; each one takes a different length of time.

Applying for the card online, over the phone or in person is the fastest step. This usually takes around 15 minutes, provided you have all of your documents handy.

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Current Interest Rate

This is the current interest rate on your existing credit card.

Where can I get a credit card?

Looking to get your first credit card? You might be confused as to exactly where to go to apply for one. Here’s where to go when you are ready to put in that application.

The bank: Your bank is a great place to start, provided that you have a good banking history. Since you already have a financial history, you have more chance of your application being approved.

Credit card provider: Another option is to apply for a credit card directly from the issuer, such as Visa, Mastercard or Amex. This will most likely be an online application, so do your research and apply for a suitable card for your circumstances.

Major retailers: Coles, Woolworths, Myer and David Jones all have credit cards available. But watch out for the interest rate and annual fees – these cards are designed to help you spend more in store.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

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Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

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  • In a branch.
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What is CVV on a credit card?

CVV stands for ‘card verification value’, and is also sometimes referred to as a CVC or card verification code.

A CVV code is usually needed when the card is used online or over the phone as an anti-fraud measure. Without the cardholder being physically present to sign or verify the purchase, the CVV provides an extra layer of protection. 

If you’re using Mastercard or Visa, the CVV is the three digits located on the back of the card. If you’re using an American Express, the CVV is usually four digits and is on the front of the card.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Monthly repayment

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