Big card surcharges will survive

According to those lovers of free markets over at Cabcharge, the 10 per cent extra you’ve been slugged for paying your taxi fare by credit card these past 36 years is not a surcharge. Not a bit of it. It’s all part of the wonderful “financial service” that is the Cabcharge payments system, the company insists. Which doesn’t quite explain how your $20 cash fare transforms into $22 if you choose to pay by credit card or a Cabcharge docket. All part of the “service”, is it?

The market has said what it thinks of Cabcharge’s semantics. Last week, the Reserve Bank of Australia’s payment systems board ordered that from the start of 2013, the surcharges applied by merchants to credit card payments can cover only “the reasonable cost of card acceptance”.

This reverses a 2003 decision to let merchants slap on whatever surcharge they like. That was a decision made in the hope of spurring innovation in the payments industry but most of the creativity it unleashed was from merchants with market power cashing in.

Hence there were “innovations” such as the flat credit card surcharge, for example Qantas’ infamous $7.70 per domestic sector, conveniently ignoring the fact that banks charge merchants an average 0.81 per cent for Visa or MasterCard transactions but 1.88 per cent for American Express.

The market reaction to the RBA announcement was to chop 7 per cent off Cabcharge’s share price, clearly saying it thinks Cabcharge has been surcharging, and doing so excessively, but that the gig may finally be up.

Although having gotten away with its surcharge by another name for so long, one wonders who can pull Cabcharge into line.

The RBA is expecting the card schemes to enforce the rules but can they really afford to withdraw their facilities from a behemoth such as Cabcharge if spirit of the rules is breached?

Given that credit card surcharging is such a grey area – called a surcharge by some merchants, cross-subsidised or linked to a “financial service” by others – industry expert Mike Ebstein says everybody would be better off if the RBA simply allowed merchants to charge the “differential” between accepting credit cards and other forms of payment, such as cash or debit card, which still won’t be recognised as having any cost under the new arrangements.

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