A Variation to the Surcharging Standards: A Consultation Document – December 2011 1. Introduction

The Bank initiated a public consultation on potential changes to the Standards relating to merchant surcharging of MasterCard and Visa credit and Visa Debit transactions in June. The Standards, which came into force in 2003 and 2007 respectively, ensure that card schemes cannot prevent merchants from applying a fee or surcharge for the acceptance of the cards of those schemes. While the Standards currently prohibit any scheme or participant restrictions on merchant surcharging, the proposals outlined in June would give card schemes the capacity to limit the level of surcharges, so that merchants could not recover an amount significantly in excess of the cost of acceptance. This would represent a relaxation of the Standards, but would continue to emphasise the right of merchants to recover fully their card acceptance costs, something the Bank believes is critical to the efficiency of the Australian payments system.

In light of the views expressed in consultation and developments in surcharging practices in recent years, the Payments System Board considers that there is a case for varying the Standards, by allowing the schemes to limit surcharges to a reasonable cost of acceptance, while at the same time ensuring the schemes' rules cannot prevent full cost recovery by merchants. The Board believes that the proposed variation is in the public interest and would improve the efficiency of the payments system by providing better price signals to cardholders and increasing the level of comfort with surcharging among both consumers and merchants.

This document outlines the views presented during the consultation process, presents some additional relevant information obtained by the Bank, and sets out the conclusions reached by the Payments System Board as a result. In light of the Board's conclusions, it seeks views from interested parties on the specific form of the variation to the Standards proposed by the Board.

Section 2 of the document provides background on surcharging practices in Australia and the current Standards. Section 3 discusses the various views from consultation and the Board’s consideration of those views, while Section 4 sets out the various options for imposing some limit on surcharges, including the Board's preferred approach. Section 5 discusses the elements of the proposed variation to the Standards and Section 6 provides details of the next steps in the process.