Credit Card " Fees " !

At long last the Reserve Bank of Australia has cracked down on a form of extortion where surcharges apply to those paying for services with a credit card.   This is widespread across industry and in particular it is used as a flat rate charge to inflate the price of low cost items to deliver a higher profit margin.

This RBA ruling requires any credit card surcharge to be limited to the actual cost imposed by the banks and this will come into effect in two stages.   From September 1 this year it will apply to major merchants such as airlines,taxi companies, ticket booking agencies and hotel chains.   Twelve months later it will come into force for all credit card transactions, nomatter the size.

The saving is illustrated by comparison with air fares.  Domestic journeys paid for with a credit card at present attract a credit card surcharge of $7 per passenger by Qantas, $ 8.50 by Jetstar and Tiger, and $ 7.70 by Virgin.  All of those will drop to about 65 cents.

The time delay for general application of the new rules will enable notification to seep through to the myriad of small merchants applying a surcharge and give them time to adjust their charging rates accordingly.  Such surcharges are widespread and apply to many hair styling salons, carpet cleaning firms, electronics repair shops and across the entire service industry.   Enforcement will follow - and punitive fines will apply.

This surcharge has been used to supplement the profit margins in highly competitive industries where low advertised rates have been used to attract customers.   In particular, the airlines fill seats by attractive pricing but the final ticket price is much higher when that surcharge is taken into account.  From September, the advertised price will be exactly what the customer expects to pay.

Originally, credit card surcharges were a legitimate cost imposed by industry to guard against fraud. Those were times when the accepting merchants simply checked the bearers signature against the signature specimen on the card as the means of acceptance.  Stolen or counterfeit cards often resulted in financial loss to the merchants and this surcharge was seen as introducing a competing risk factor.

Today, in this electronic age credit charge are no longer reliant on signatures and the card checking regimen in place is more stringent.   We have also seen a clear divergent in the type of card in use. Many cards still add to the debt that the cardholder is expected to pay off over a period of time, but there is greater use of " debit " cards - in which the customer is simply accessing their own money. Merchants no longer have to wait to bank the days cash takings or suffer the delay of having personal cheques cleared.   The electronic world is one of instant availability as funds are simply transferred automatically from one account to another.  In the future, it is predicted that most small transactions will be processed by swiping a card over a terminal rather than exchanging coins and banknotes.

Now the final frontier in this age of "plastic " awaits attention.  Despite interest rates being at a historic low, the interest charged across the credit card spectrum is uniformly about twenty percent because the " scattergun " approach applies.    Lending authorities make little attempt to regulate credit worthiness and instead impose a high rate that evens out the losses.

It seems that the competition for market share is more important than servicing the quality of the customers attracted !