Visa has become the first company to ban hefty credit card surcharges and small and medium businesses have been warned to take a look at any fees they impose on credit card use.
New rules come into force today which Visa says it will use to restrict surcharges to as little as 1% and will impact on the more than 36% of Australian businesses which impose some type of surcharge on a customer’s bill.
Businesses are now required to limit surcharges to the “reasonable cost of card acceptance” for a Visa transaction, and will need to be able to justify any surcharges they pass on to consumers.
The justifiable surcharge can be made up by the merchant service fee, terminal line cost, credit card terminal rental, annual acceptance fee and employee training to operate the terminal – particularly in a business with a high volume of employee turnover.
The move by Visa puts pressure on MasterCard, AMEX and Diners Club to follow suit, with Amex and Diners Club card transactions to attract surcharges of 3- 4%.
Russell Zimmerman, head of the Australian Retailers Association, says the ban is the result of a decision by the Reserve Bank of Australia last year to limit surcharging.
“At this point in time only one of the schemes has done it and that is Visa, I would think some of the others may also follow suit,” he says.
“Most bricks-and-mortar retailers do not generally include surcharges, it is certain merchants and industries that surcharge; so what we have got here is Visa saying if you are going to surcharge you have to justify it.”
Zimmerman warns some industries will be quite badly affected by the ban.
“If you are questioned by your acquiring bank as to how you have arrived at the surcharge then you will have to be able to justify the surcharge, and if you can’t justify it, there is a possibility that the acquiring banks could switch off the service,” he says.
The vast majority of Australian businesses are already doing the right thing, according to Tyro Payments, a new entrant in the eftpos business.
“Almost 65%, or about 200,000 companies, impose no surcharge at all on credit card transactions, while absorbing the fees the large banks impose on them,” Joost Stollmann, the chief executive of Tyro Payments, said.
“The truth is many small businesses are being forced to fund the lucrative loyalty programs of the major banks by absorbing these costs.”
Stollman has called on the banks and credit card providers to lower their credit card fees for small business and warned many businesses will be unaware of the changes that came in from today.
“How are retailers going to prepare for the change, adjust their systems and train their staff in time to avoid breaking their obligations under their contracts?” he said.
“How will retailers deal with customer complaints about surcharging when they have not been given time to prepare for the change?”
Cara Waters is the editor of SmartCompany. Cara was previously a senior reporter at the Financial Times website FT Adviser in London and has also worked for The Sunday Times.
