Grounds/Reasons for the Written Questions

Chapter 6.       The Reserve Bank acknowledges that Transactors revolving Lines of Credit costs are paid by Revolvers. 

 

 

 

Below is RBA information under 5. IMPACT ANALYSIS of RBA's Reform of credit card schemes in Australia IV: Final reforms and regulation impact statement, August 2002 which provides the below Table 5 that establishes that Transactors made only a very small contribution to the 'Revenues' earned by Credit Card Issuers in 2000.  Recent data evidences that disparity between the revenue collected from Transactors vis-à-vis Revolvers has not changed.

"Beneficiaries under this option

If credit card scheme restrictions were to remain largely unchanged, the main beneficiaries of the arrangements would continue to be:

(i)          credit card Transactors who settle their credit card account in full each month; and
(ii)         credit card Scheme Members and the Schemes themselves.

Credit card Transactors make only a very small contribution to the revenues earned by credit card issuers (Table 5 below).  Transactors pay, at most, an annual fee to hold a credit card, but receive interest-free credit and may be eligible for loyalty points which accrue in proportion to the value spent on their credit card.  Around one quarter of credit card balances outstanding do not attract interest.  Based on information provided to the Joint Study by card Scheme Members, revenues received from Transactors from annual fees fall short of the cost of providing the interest-free period and loyalty points by around $90 million a year.  That is, Transactors are subsidised by this amount each year.

A continuation of current price incentives would be expected to increase the size of the transfer from the community to credit card Scheme Members.  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."

 

 

 

 

 

 

 

 

 

 

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