Grounds/Reasons for the Written Questions

Chapter 4.      The Wholesale Supply Side operates on the equitable User Pays Principle, except for Interchange Fees, because three of the four parties have 'powerful lobby groups'

The Wholesale Supply Side comprises a Credit Card Issuer, Card Acquirer, Card Network and a Merchant. 

The 2nd paragraph of 5. IMPACT ANALYSIS of RBA Aug 2002, Reform of credit card schemes in Australia IV: Final reforms and regulation impact statement below notes that ".... The schemes typically charge their members a flat fee per transaction ...".  A usage 'transaction fee' levied by Visa and other Card Networks was agreed on the Wholesale Supply Side after Argy Bargy between Credit Card Issuers, Card Acquirers, Credit Card Payment Schemes and merchant associations such as Australian Retailers Association. 

"Credit card issuing and acquiring are currently very profitable activities in Australia.  Information provided to the Joint Study by card scheme members showed that the provision of credit card services generates revenues well above average costs, especially for financial institutions which are both significant Card Issuers and Acquirers. The margins are particularly wide in credit card Acquiring (Table 6). Although card scheme members were generally unable to supply suitable capital data, indicative figuring by the Reserve Bank – based on the main risks against which capital would be held – suggested that the margins in Credit Card Issuing and Acquiring were well above what would be required to provide a competitive rate of return on capital.

The designated Credit Card Schemes would also continue to benefit from current arrangements.  MasterCard and Visa earn revenue from credit card activities in Australia through their operational role in providing switching facilities to participants. The schemes typically charge their members a flat fee per transaction for processing transactions through their switch, a source of income which has risen significantly over recent years in line with the strong growth in the number of credit card transactions."

A lot of Argy Bargy periodically amongst the following lobby groups over supply/demand impacts and cost-based benchmarking of services/funding costs have contributed to "competitiveness and efficiency in pricing" on the Wholesale Supply Side of the Debit Card and Credit Card Systems in Australia:

  1. *    Visa, MasterCard, Amex, Diners Club
    *    eftpos

  2. *    ePal - part-owned by the Four Pillars and also Coles and Woolworths

  3. *    Australian Payments Clearing Association

  4. *    AMA, The Pharmacy Guild, Retail Traders Association, Australian Newsagents Federation, other Merchant special interest groups
    *    TYRO Payments Limited

Chapter 18 notes 'inter alia' that the Australian Retailers Association - Submission to RBA dated 2001 -  Credit Card Schemes in Australia advocated that the:

        "Merchant Service Fees should be completely abolished and replaced with market negotiated activity based fees;"

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