Review of Retail Payments Regulation Summary of Submissions to the Review of Merchant Card Payment Costs and Surcharging Consultation Paper

Transparency of wholesale fees

Many stakeholders stated that wholesale fee schedules from Visa and Mastercard were overly complex. These stakeholders supported simplification and further transparency, particularly on scheme fees. While there was broad support for the RBA’s proposals, many submissions stated that they did not go far enough to address the complexity of scheme fees.

Maintain the status quo

Some card schemes stated the current approach to wholesale fee transparency was working well and opposed the aggregate data publication requirements because publishing these data would:

Not materially improve market outcomes. A card scheme stated that the RBA had not demonstrated how the proposed publication of data would influence behaviour of stakeholders such as acquirers, PSPs or payment facilitators. It stated that the RBA had not identified how the information would be used and what behaviours would be expected to come out of having access to the information.
Include data that is commercially sensitive. Both schemes stated that publishing scheme fee data including rebates does not adequately balance commercial sensitivity with the information needs of the market.
Harm competition and the innovation driven by scheme fees. A card scheme stated that the information could be used by other scheme operators in Australia and overseas to reverse-engineer their pricing strategy and structures.
Increase competition law concerns around price coordination. One scheme stated publishing wholesale fee data could facilitate anti-competitive coordination due to the concentrated market.
Create an uneven competitive playing field with unregulated entities. Publication of data by four-party card schemes only would leave competitors such as BNPL, digital wallets and three-party schemes unregulated and not subject to equivalent transparency obligations.

Some schemes opposed the RBA setting expectations that the international schemes work with industry to reduce the complexity of their fees because:

The RBA’s expectation was not specific enough. A scheme stated that the expectation lacked parameters and it was unclear what was required.
Industry initiatives to improve transparency already exist. A scheme stated that existing industry initiatives that balance service sophistication with transparency allow market forces to drive optimal fee structures while ensuring participants have adequate information for decision making.
The complexity of fee structures is necessary given the breadth of services offered by the international card schemes, which cater to diverse market needs:
- In support of maintaining its existing approach to its fee schedule, a scheme stated that despite the complexity of its fee schedule, its top 20 fee items represent more than 95 per cent of the overall fees that it charges to acquirers; the top eight fee items represent more than 75 per cent of the total fees typically billed.

Require card schemes to publish aggregate interchange fees

Stakeholder submissions were generally supportive of the proposal to require the card schemes to publish aggregate data on interchange fees on a quarterly basis. However, some submissions stated that the proposals did not go far enough to address the underlying complexity of interchange fees.

Some submissions supported the proposals because:

Fees are overly complex. Stakeholders supported the information being presented in a way that was standardised across the schemes given the complexity of interchange schedules. Stakeholders stated that the complexity of the fee schedules adds costs into the payments system without corresponding value-add:
- A large merchant stated that the complexity of fees currently makes it difficult for merchants to accurately cost recover their payment costs.
- A large merchant noted that it struggled to reconcile interchange fees it was being charged with the published interchange fee schedules.

Fees are opaque. Many submissions highlighted the opaqueness of interchange fees, strategic rates and volume discounts. While the published fee schedules have helped increase transparency, some stakeholders still found it was difficult to reconcile actual fees charged with the fee schedule.
The commercial sensitivity concerns are minimal. Stakeholders stated that interchange fee schedules are already public, so there is likely to be minimal impact on commercial sensitivity from publishing aggregate interchange fees. The standardised format of the publication requirement could support competition without compromising commercially sensitive information.
It would increase competition between the schemes. Some stakeholders stated that aggregate transparency may pressure the card schemes to reduce (or simplify) pricing and may require schemes to justify fee increases.

Other suggestions to improve the proposal included:

Requiring more granular splits of data. Some submissions suggested that the proposed publication requirements could require further breakdowns and categories of the interchange fee data so that merchants could use it to manage and understand costs by transaction type. Another submission suggested a breakdown of fees by industry.
Requiring interchange fee information to be provided in a user-friendly format.
Requiring disclosure of strategic rates and volume discounts. Some submissions commented on the opacity of volume discounts and strategic rates and suggested that the schemes should be required to disclose strategic rate agreements including criteria (such as volume) for qualification.
Reducing the number of fee categories or significantly lowering the cap on interchange fees to achieve simplification of interchange fees.

Some submissions opposed the proposal to publish aggregated interchange fees because:

The fee breakdowns proposed are overly simplistic. Some stakeholders stated that publishing aggregate fees would not address underlying issues regarding the complexity of fee schedules and may not directly benefit merchants.
Merchants would not use the information.
Interchange fee schedules were already public and it was unclear what the marginal benefit of aggregate publications would be.

Require card schemes to publish aggregate scheme fees

Many submissions were supportive of the proposal to require card schemes to publish their aggregate scheme fees on a quarterly basis. Some submissions supported the proposal but felt that it would not be enough on its own to resolve the complexity of scheme fees and/or put enough competitive pressure to prevent scheme fees from rising further.

Some submissions supported the publication of aggregate scheme fees because:

The scheme fees of Visa and Mastercard are opaque and complex. Some submissions stated that scheme fees were the least transparent part of merchant service fees and the component that payment participants had the least control over. Many submissions stated that the complexity of scheme fees was far greater than the complexity of interchange fees and that scheme fee schedules could be 400 pages long. Submissions stated that the complexity of scheme fees creates operational costs in trying to understand, manage and reconcile fees.
It would put competitive pricing pressure on the card schemes.
Special scheme fee rates and discounts for larger players are opaque and entrench market power.
The information was not commercially sensitive because the information was sufficiently aggregated.
Standardised information across schemes would assist in comparing prices and services. Many submissions reported that fee names and classifications can differ between schemes.

Some submissions suggested improvements to the proposal, including:

Publishing the average scheme fee paid per transaction across each card scheme, split by transaction types (such as card present vs card-not-present) transactions. This would provide information about each scheme’s pricing without publishing its market share.
Reporting the transactional and non-transactional components of scheme fees.

Some stakeholders opposed the proposal to publish aggregate scheme fees data because:

Optional fees should not be captured in publication requirements as they may mislead merchants in thinking these are unavoidable card network costs rather than discretionary acquirer business decisions.
It was unclear how the data would help merchants because Visa and Mastercard are ‘must take’ payment methods and the publication of data could result in coordinated pricing across schemes.

Set an expectation that card networks reduce the complexity of their scheme fee schedules

Many submissions supported the proposal that the RBA set an expectation that the schemes work with industry to reduce the complexity of their scheme fee schedules. However, many submissions stated that the proposal did not go far enough, lacked specifics and required escalation measures if insufficient progress was made.

Stakeholders provided near-unanimous feedback that the scheme fee schedules of Visa and Mastercard were excessively complex, and the level of complexity was significantly beyond that of interchange fees. Submissions stated that the fee schedules for eftpos and American Express were relatively simple to understand in comparison.

Many submissions supported a reduction in the complexity of Visa and Mastercard’s scheme fee schedules, citing issues with the status quo such as:

The excessive length of scheme fee schedules. Some submissions stated that fee schedules were often 400 pages long, which meant that PSPs had to invest significant time and resources to understand the fees, to manage their scheme fee costs and reconcile fees.
The large number of scheme fees. Submissions stated that some schemes could have up to 800 categories of fees, sometimes with conditional fees and tiering of fees applying when certain criteria were met.
The number of fees had been increasing over time and some stakeholders were concerned that this trend would continue in the absence of intervention.
The number of scheme fees that could apply to a single transaction. Submissions indicated that it was common for multiple scheme fees to apply to a single transaction, with some transactions incurring over a dozen scheme fees.
Unclear justifications for the introduction of new fees or fee increases, sometimes with little notice. Several PSPs stated that they sometimes do not understand the justifications for new fees or fee increases, but that they had little or no scope to query or negotiate these changes with Visa or Mastercard. There were mixed views on whether the schemes provided adequate notice periods for fee changes.
Ambiguity over whether fees are optional or mandatory. Some submissions stated that it was difficult to avoid optional scheme fees. They also reported that optional fees may be introduced on an opt-out basis, which could mean that PSPs that did not wish to opt in could be charged. Some submissions characterised some optional fees as akin to compliance fines, and indicated that PSPs do not always have sufficient information to avoid them or have control over whether they could avoid them.
A lack of standardisation of fees across schemes. Different terminology used across schemes makes it difficult for acquirers to compare and reconcile fees.
Instances of billing errors not adequately addressed by the schemes. Some acquirers reported that there were instances of errors and incorrect charges that were significantly resource and time-intensive to investigate and correct due to the complexity of scheme fee schedules. Acquirers who were eventually reimbursed commented that the schemes did not proactively reimburse other acquirers for these billing errors.
Complexity undermines the intent of behavioural scheme fees. An international scheme can charge lower fees for a particular transaction type it is trying to incentivise acquirers or other participants to adopt (e.g. incentivise tokenised transactions due to increased security). Some acquirers noted that such behavioural fees introduced by the schemes were not effective in steering behaviour due to the complexity and high number of fees that can apply to a single transaction. Another PSP reported that behavioural fees may be charged to acquirers for behaviour outside of their control (e.g. due to the behaviour of the customer or issuer). A stakeholder also stated that the schemes tended to raise all other scheme fees rather than provide discounts on the relevant fee that it was trying to incentivise, which meant that costs were not lowered overall.
A lack of transaction-level scheme fee information that prevents merchants, particularly sophisticated merchants, from being able to reconcile fees and optimise their strategies for managing their payment costs. Merchants reported not having access to scheme fee schedules, which means they are unable to reconcile or check the fees they are being charged. A large merchant that operates through several acquiring banks noted each acquirer charged them different scheme fees for like-for-like transactions despite having an interchange++ plan with each of them. This indicated to the merchant that the acquirers lacked the ability to allocate scheme fees at the merchant-level or transaction-level.
The complexity of fee schedules results in an inability for major acquirers to allocate scheme fees at the merchant-level or transaction-level. This has been cited by stakeholders as one of the major barriers for implementing dynamic LCR. It also leads to further reconciliation problems when merchants are not sure they are being charged correctly by their acquirer.
The schemes charge PSPs to access reports that are needed to reconcile or understand scheme fees. PSPs are charged further fees to obtain information they need to investigate their billing. Some PSPs noted that this is not common practice with billing in other industries.
The schemes charge for services that are not yet being offered by issuers. Some PSPs have reported that Visa and Mastercard have charged fees associated with the rollout of new products before those products are made available by the card issuer.

There was also strong feedback from stakeholders that the RBA should do more to ensure that its expectations are followed through. A few submissions noted that the industry had long been raising these issues with the international schemes to no avail and expressed scepticism that the RBA setting expectations would be effective.

Some alternative options raised by stakeholders included:

Providing more specific requirements and measures for a reduction in complexity. Some stakeholders stated that the expectations approach was too vague and would lead to no tangible progress, particularly if the schemes disagreed with the rest of the industry on what level of simplification was required.
Outlining potential escalation measures and timelines if complexity remained after a certain time. Stakeholders mostly agreed that the expectations approach required clear escalation points with regulatory alternatives as a back stop to enhance the likelihood that a reduction in complexity would be achieved. Some submissions encouraged the RBA to consider enforcement mechanisms such as capping scheme fees (see the next section).
Capping the maximum number of scheme fees that a card scheme can have on its fee schedule. Some stakeholders pointed to the submission of a scheme, which stated that its top 20 fee items comprised a vast majority of its fees as justification for this option.
Capping the maximum number of scheme fees that can apply to a single transaction. PSPs stated that this would significantly reduce the complexity of reconciling scheme fees and improve their ability to accurately predict their costs.
Requiring the schemes to provide merchants with a transaction-level breakdown of scheme fees. Several submissions (particularly from large merchants) stated that merchants required this level of detailed information to reconcile their fees and ensure they are being charged correctly by their acquirer. They noted that the aggregated level of some of the information on their merchant statements made it hard for them to compare fees between acquirers and schemes and verify their invoices.
Prohibiting the schemes from charging additional fees to access reports required for reconciliation purposes. Some PSPs queried the practice of being charged additional fees to understand their scheme fee invoices and stated that this information should be provided upon request by the schemes.
Standardising reporting format and terminology across schemes to enable PSPs and merchants to compare fees more easily across schemes. Some merchants also indicated they would benefit if reporting formats and terminology were standardised across acquirers for comparison purposes.
Requiring the schemes to develop and provide an emulation tool that accurately predicts scheme fees for merchants and acquirers to provide greater certainty around costs for merchants.
Requiring all acquirers to adopt interchange++ plans to improve transparency of scheme fees.
Promoting alternative payment methods to put competitive pressure on scheme fees.
Requiring greater governance and control over scheme fee growth and justifying new scheme fees. A few submissions suggested that the RBA should review justifications for scheme fee changes to provide an accountability mechanism for scheme fees.
Requiring schemes to provide longer notice periods for significant fee increases.

Continue to ‘The level and growth of scheme fees’