What does the RBA's new legislation mean for businesses like yours?
Most people reading this piece will own a credit card. With just under 17 million credit card users in Australia, the chances are that you’ll also have experience or knowledge of the surcharging that comes hand in hand with credit card usage. And if you’re a merchant, you may also be aware of the new excessive surcharging limits that the RBA (Reserve Bank of Australia) recently released and be wondering how this affects your business – and customers.
What’s the new legislation?
The Reserve Bank of Australia released three standards into legislation in an effort to reduce the cost of card payments to business and consumers in Australia. The legislation aims to achieve this by a few mechanisms:
- Limiting the Interchange fees payable to the issuers of credit, debit and prepaid cards
- limiting the surcharge that a merchant (a business accepting card payments) can surcharge to customers
- improving the transparency of fees paid for card acceptance
The last clauses of the standards have taken effect as of 1st September 2017. These clauses state that all merchants cannot pass on a surcharge to the customer that is more than their Cost of Acceptance for each applicable card type.
Interchange fees and their impact on the cost of card acceptance
In the card payments ecosystem, there a number of parties involved in the processing of a transaction, for the sake of this post we will focus on:
- Issuers, who produce Credit, Debit and Prepaid cards used by consumers to make payments
- Acquirers, who provide a merchant facility that enables a business to accept card payments
- Merchants, who are the businesses accepting payments from consumers
When a card payment is processed, the Issuer is paid an Interchange fee set by the likes of Visa and Mastercard. The fee is a large part of what is included as part of the cost that the Acquirer charges the merchant.
Acquirers have a range of pricing models that they typically apply to their Merchants for card payments, some of which make it difficult to determine how much it actually costs them to accept card payments. These pricing models have different interchange rates for different types of businesses, as well as varying rates depending on the type of card used to make a payment, i.e. domestic vs international cards, debit vs credit, and standard vs premium card types.
Calculating your Cost of Acceptance
Acquirers are now required to clearly provide an average cost of acceptance across card schemes and card types on their statements to Merchants. The exact breakdown will be dependent on the complexity of the pricing structure that the Acquirer has with a Merchant. There will also be a table showing the annual cost of acceptance for the previous 12 months in the June statement.
If a Merchant wishes to pass on a surcharge to the consumer then they should use these tables to set surcharge rates that are no more than their cost of acceptance.
There are a couple of factors to consider here:
If, in the processing of a transaction, you cannot distinguish between card types, then you must apply the lowest rate for the category. For example, the cost of acceptance for debit cards is typically lower than for credit cards, but if you cannot differentiate between the card type at the time the payment is made, then you must apply the debit rate across both card types.
There are some additional fees that may not be included in the statement that you may be able to include in your cost of acceptance, including items such as rental and maintenance of payment card terminals, gateway or fraud prevention services relating to the acceptance of those payments for the card scheme.
Applying your Cost of Acceptance
To meet the needs of businesses in meeting their compliance obligations, Bambora has developed proprietary functionality that allows our clients to be able to identify and apply different surcharge rates dynamically, in real time, across a range of card types in accordance with their identified cost of acceptance. This includes different card schemes, as well as Domestic vs International and Debit vs Credit vs Prepaid.
Many of our clients have complex payment needs, so this functionality has been designed to be applied across a range of payment channels and different use cases.
Our feature empowers businesses to take control by sending you a full financial overview of your payments activity. This provides powerful information on shopping trends, customer behaviour and payment preferences, which, in turn, enables you to uplift your payment experience by adapting to your consumer’s landscape.
If you’re keen to find out more about the RBA’s new legislation and how it might affect you, or more information on our surcharge feature – get in touch!