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Banks, Amex say card changes will cut competition

Banks and American Express argue changes to card rules planned by the Reserve Bank will reduce competition and merchants say they will be out of pocket because the new definition of surcharge costs will be too narrow.

Under draft rules released by the Reserve Bank, which regulates payments, American Express is for the first time facing caps on the fees it can pay banks who issue its so called "companion cards" alongside MasterCard and Visa cards linked to the same account.

Amex charges businesses on average a 1.7 per cent fee per transaction when they accept Amex companion cards. This partly funds separate, undisclosed fees, to banks for issuing Amex cards. Under the new rules, the fees paid to banks will be capped at 0.8 per cent.

Banks use these fees to cover interest free periods, fraud and to buy rewards points to give to bank customers.

But the RBA says these cards give incentives to banks which should be capped just as MasterCard and Visa's similar "interchange fees" are. It thinks the fees have a "perverse" tendency to rise when competition increases. The fees pay for interest free periods, cover fraud and are used to buy rewards points, which is the main way card issuers compete.

American Express argues the central bank's move will reduce its ability to compete with its giant rivals, which hold more than 80 per cent of the card market in Australia.


"The regulation of the American Express companion card scheme will have the result of taking share from American Express [which has less than 20 per cent of charge and credit volume] and awarding it to the dominant card schemes," Amex's submission to the RBA says.

"Consumers will now be subject to negative consequences on two fronts: a further round of reductions in the benefits offered with credit cards and more surcharges from merchants when they use their cards."

Westpac and Commonwealth Bank also said regulating Amex companion cards, which they issue, would reduce competition as some banks would likely stop issuing companion cards.

"We suggest that the impact on public interest, in terms of competition and efficiency, is explicitly considered in the next phase of the review," the banks said.

Commonwealth Bank, which has the biggest share in credit cards, said the proposal would "significantly change" the market structure, and "result in a large upheaval to the bank's Amex companion card products."

The RBA and the Australian Competition and Consumer Commission will also force banks to give merchants clear pricing for card processing which they can then pass onto customers in surcharges. The ACCC will have new powers to force businesses to only charge the cost of acceptance.

But several businesses, including Qantas, Ticketek and Flight Centre, say the new definition of the costs of payments – which will be confined to bank charges – is too narrow.

"The proposed new standard excludes legitimate merchant expenses . . . such as infrastructure, fraud and third party service and equipment suppliers," Qantas' submission states.

Correction: An earlier version of this article incorrectly stated that the RBA's changes would cut the 1.7 per cent merchant service fee Amex charges businesses.