To alleviate the inflationary pressure on consumers and small businesses, the Australian government has announced plans to ban interchange fees on debit card purchases.
The Australian central bank estimated that debit card surcharges cost customers A$1 billion ($671 million) per year. Debit card usage has picked up steam in the country since the pandemic, with the central bank reporting that less than 12% of retail transactions in Australia are made with cash.
These transaction fees cost small businesses in the long run. The Australian government identified instances where smaller merchants were charged twice the amount that large retailers paid for the same transaction.
Sending a Message
It will likely take over a year before the interchange fee ban is implemented, as the rule is still subject to review by the Reserve Bank of Australia. However, the government felt it was the right time to send a message to payment providers that unfair and excessive debit card surcharging must be eliminated.
Australia’s move follows the European Union’s lead, which banned debit card interchange fees six years ago. Not long after, the UK instituted its own ban on both debit and credit card surcharges.
Seeking Clarity
In the U.S., debit card interchange fees are governed under Regulation II of the Durbin Amendment, which caps the fees at 0.05% of the transaction amount plus $0.21, with an additional $0.01 for fraud prevention measures.
Last year, U.S. regulators voted in favor of a proposal to lower debit interchange fees to 0.04% plus $0.144, as well as an increased fraud prevention rate of $0.013. The changes sparked controversy among merchants and issuers. Many merchants felt the reduction didn’t go far enough, while some issuers were concerned about the potential loss of revenue. Despite a flood of commentary, there has been no ruling on the reduction yet.
Fees have long been top of mind for merchants, especially credit card interchange fees. After a highly publicized $30 billion settlement between Visa, Mastercard, and merchants was recently shelved, there is still no clarity on when U.S. merchants might see a reduction in credit card interchange fees either.
