Australia’s small businesses pay more than four times as much per transaction to accept payments than big business, according to a Reserve Bank of Australia (RBA) review of the effect that cost-of-payment methods have on the national economy.
The study found large businesses paid about 20 cents per transaction across all payment instruments, while small businesses paid about 90 cents – due to economies of scale, but also because they pay much higher fees per transaction for card payments. Big companies get lower ‘strategic rates’ for the higher volumes they put through.
The RBA study will inform the bank’s regulation of payments. In its submission to the Murray financial system inquiry, which the Australian government is due to release shortly, the bank said it was considering whether it should cap card fees at a lower rate because the cost mainly falls on merchants.
It said credit cards still have one of the highest “costs to society” but continue to be favoured by consumers as they are rewarded for using them via low fees, interest-free periods and rewards points. Ultimately businesses pay for the incentives paid by banks to consumers to use credit cards.
The study noted that the RBA has tried to reduce the incentives for consumers to use high-cost payment methods such as credit cards, however, consumers “continue to receive incentives to use credit cards so that the private cost to use credit cards is no higher than debit cards, despite their higher social cost”.
“Merchants continue to bear higher costs for credit-card payments than debit-card payments and small merchants bear significantly higher costs than large merchants,” according to the research discussion paper
Evolution of Payment Costs in Australia
Since weighted average caps of 0.5% per transaction on interchange fees paid to banks issuing credit cards were introduced by the RBA a decade ago, Visa and MasterCard have greatly expanded the number of fee levels, from zero for charities to more than 2% per purchase for premium cards to pay for high-rewards points to people with premium credit cards. Although higher than the cap, the total level of fees charged averages out to 0.5% over the three years.
However, cash is the most expensive for Australia’s economy as a whole, costing businesses, including banks and merchants around A$2.9bn, which accounts for more than a third of companies’ total cost of payments of A$8.4bn. The total cost of all payment methods to the country is A$10bn, of which about A$2.6bn is shouldered by consumers.
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