Down under, Another Fee Fight for Visa, MC
Breitkopf, David, American Banker
While defending their interchange policies in U.S. courts, Visa and MasterCard are fighting an equally contentious battle over the same subject in Australia, where the nation's central bank seems poised to force a drastic reduction in the amount the associations can charge.
The situations are quite different -- in Australia, where credit card acceptance and cardholder penetration are much lower, the central bank objects to high interchange rates, while U.S. merchants are suing over debit card rates -- but Visa and MasterCard argue that either set of proposed changes would threaten the viability of the card payment business.
In the United States, Visa U.S.A. and MasterCard International have taken their challenge to the merchants' lawsuit, known as the Wal-Mart case, to the Supreme Court. Last week the associations asked the top court to review the class certification that has been granted in the case.
But down under, where the Reserve Bank of Australia will decide in June whether to implement three proposals that would compel lower rates, Visa International and MasterCard International seem to have little recourse other than taking the central bank to court.
The Reserve Bank of Australia, which has been studying the issue for two years, says it has concluded that the interchange rates set by Visa, MasterCard, and a similar company, Bankcard Association of Australia, are too high and violate antitrust laws because they are set collectively by banks. The current system financially rewards cardholders and issuing banks, at the expense of merchants and consumers who do not use credit cards, according to the Reserve Bank.
Saying that interchange rates are higher than can be justified by costs, the Reserve Bank has proposed a rule that would force the calculation of interchange to be based on "issuers' costs incurred in processing credit card transactions received from an acquirer that would not be incurred if the issuer was also the acquirer in those transactions," according to the central bank's Web site.
The companies that operate closed-loop credit card systems in Australia, American Express Co. and the Diners Club Inc. subsidiary of Citigroup Inc., would be exempt from the proposed rule, because they are both the issuers and transaction processors for their cards, and they set their own fees for their services.
In addition, the Reserve Bank has proposed overturning association rules that prevent merchants from surcharging customers who pay by credit card. Such a surcharge would permit merchants to defray the cost of interchange, the central bank argues.
Since merchants currently cannot surcharge cardholders directly, they defray that cost by increasing the prices of all their goods, so consumers who do not use credit cards suffer as much as those who do, the central bank says.
Only about half of the adults in Australia have credit cards, according to the Reserve Bank. Visa says that half a million merchants accept its brand, but acceptance there is growing.
A third Reserve Bank proposal would ease the way for other credit card companies -- particularly monolines -- to enter the country by removing a requirement that card issuers also take deposits in Australia. New entrants would be supervised by the Australian Prudential Regulation Authority.
The Reserve Bank began accepting comments on the three draft proposals last month, and it expects to make a final decision in June.
Though the situation in Australia appears to be an isolated example of a central bank challenging interchange, Visa and MasterCard -- which have been fighting the proposals at every turn and say they may go to court to try to block them -- say there are major international implications. …