The world has seen a big decline in the popularity of credit card usage over the past 10 years. Like the large prehistoric reptiles that once roamed our planet, the credit card too looks like its gearing up to join them on the extinction list. One of the main reasons for this is that shoppers these days are asking themselves questions like, why are we still paying extra charges to use a credit card? Should it still be treated as a privilege to pay with one even though the entire world uses them. As smartphones become more and more prevalent in our everyday lives, the likelihood that they will one day replace credit cards for making payments is becoming far more likely.
“Tap-and-go” payments are increasing in popularity, whilst eftpos payment figures having more than doubled since 2009. Yet many stores across Australia, and the world, still charge up to several dollars in fees to pay with a card while some even demand you spend more than $10 if you choose to pay with one. Paying an additional $1 for a coffee, for example, that costs $3 can generate additional costs of up to $260 being paid just on fees every weekday for a year. So why do we have to still put up with this and what changes do we need to see in the market before the mobile payments take over?
Retail stores such as David Jones generally absorb the fees that are associated with our credit and debit card purchases. Other stores, which tend to be smaller, pass those charges on to its customers and sometimes they even charge enough to make a small profit for themselves too. In 2003 the Reserve Bank of Australia introduced the option for retailers to charge transaction fees and card minimums and since then retailers have pretty much been allowed to do what they like.
The reason the fees were introduced was to encourage eftpos debit transactions over credit card ones. Although both types of cards have different charges connected to them, most retailers do not distinguish between them. What’s even worse is the fact that if you use Visa payWave or MasterCard PayPass your debit card may get charged as a credit card. As ridiculous as this sounds, it’s cheaper to use the old-fashioned card and simply enter your pin.
‘East’, the banking research and analysis firm revealed that 45% of businesses across Australia apply a surcharge, while 29% are considering its application. A survey they conducted in 2011 on 50 stores in Melbourne found that half of those stores were imposing minimum spend limits. The majority of owners commented that they were simply passing on the fees charged by the banks that own the card terminals. Other owners said they had to increase the prices on all of their products to cover the charges. Either way, change is coming and there is increasing pressure on storeowners to change their costly ways.
Its not all bad, in 2013 the Reserve Bank began cracking down on excessive fees and ended up forcing a Sydney carpet store to remove what became known as the “biggest credit card surcharge in Australia”. The company was charging 12.5% if customers wanted to pay using a Visa Mastercard or eftpos. They also removed fees from a tour operator after one customer complained for receiving a $63 fee when booking a tour with a Sydney travel agent.
Jetstar and its parent company Qantas denied that they made any profit from their booking fees, which are around $9. Yet, the rules vary across the market because the likes of Coles and Woolworths charge us nothing for any form of credit or debit card payment. Aldi charges 0.5%, Westfield car park charges 2.5% on all forms of payment with card and even worse still, Taxi drivers charge 10% on all transactions.
To put all this into perspective, non-cash payments last year totalled $227 billion each business day, equivalent to roughly 14% of our annual GDP, according to the Reserve Bank of Australia. Why should we continue to be penalised for using our plastic?
I personally choose to avoid stores which have high credit charges, firstly because I don’t believe I should have to pay them and secondly because most of the time I don’t carry cash.
On top of this many banks provide minimum monthly pay-in amounts on bank accounts to receive fee-free transactions, basically resulting in poorer people having to pay fees twice. But what drives me absolutely crazy is withdrawal charges. Sometimes I’ve had to pay up to $3-$4 just to withdraw my own money. Yes, ATM machines need maintenance, but I’m pretty certain the banks make enough money to cover this!
The banks are the ones we really need to focus our anger on here because they make it difficult for the bottom line of smaller businesses with the following types of charges:
- Terminal establishment fees, closure fees and on-site installations.
- Terminal rental, access fees and annual fees.
- Service fees on credit card transactions (between 0.5 – 3%).
- Merchant service fees on credit card transactions.
- Eftpos fees, which are usually between 10¢ and 50¢.
Almost all banks including Australia’s big four allow retailers to charge a “reasonable” fee for using credit cards. Commonwealth Bank and MasterCard do not allow retailers to impose a minimum spend amount whilst Visa advises its customers against it but does not prohibit it. The head of Visa Australia, Vipin Karla said in 2013 that fees of more than 1.2% could no longer be justified.
The Reserve Bank reported that under-30’s made around 80% of their payments using debit cards whereas other groups were around 50%.
Bruce Mansfield, the CEO of eftpos Australia said, “Eftpos would prefer to see no minimum limits applied to eftpos cheque and saving transactions. It’s about convenience because having no limits makes it easier for consumers. However merchants have the choice to set their own limits. It is a matter between them and their customers.”
Kirsty Lamont, the director of Mozo.com.au commented that, “There should be no minimum purchase amount when paying via you savings or cheque account. These are cheap for a retailer to process and should not be passed on to customers.”
To save yourself from paying these fees, you should try at all times to pay from your savings or cheque account rather than your credit card. It’s less likely that you will be hit with a fee, and if you do get charged, the fee will likely be smaller than a credit card fee.
This is why I cant wait for the likes of Google Pay, Samsung Pay and Apple Pay to become more mainstream, because this will hopefully reduce or if not eradicate fees like these from our lives forever.