Loss of Interchange Income Makes Members Biggest Losers in Australia
HONG KONG -- A cap on card interchange similar to one promoted by some U.S. retailers has turned Australian CU card programs from being contributors to their bottom lines to net money losers.
Australian credit union executives attending the 2008 World Credit Union Conference reported that the interchange cap has forced them to begin charging fees to cardholders. This has led to reduced card usage and has pushed them to begin charging fees for other CU services that the card interchange previously supported.
The only group that has benefited from the interchange cap have been Australian retailers, the executives said, whom they charged with substantially pocketing the interchange cost reduction. According to the CU executives, they have not passed the savings on in any meaningful or sustained way to consumers, despite that consumer savings was cited as a primary reason for the cap.
The Australian credit union executives largely validated the dire predictions of the impacts of a card interchange cap in the U.S., should the U.S. Congress ever put one into place, saying that the severe cuts in interchange income threatens to stall the move from the use of cash and checks to cards.
"With the cost of fraud and other card costs the cards don't really pay for themselves anymore," explained Phylip Doughty, CEO of MECU Ltd., Australia, the largest credit union in the state of Victoria. "We haven't done it on credit cards yet, but we are moving toward putting fees in place for using the cards." Doughty said the CU has already put a fee schedule in place for use of debit cards at points of sale and ATMs.
Doughty also explained that retailers will give a lower price for using cash if consumers ask for it but don't remind them that the lower price is available.
"Many people who might be buying a big item might ask for the lower noncard price, but if they are just buying something small, they will still use their cards and just not take the price break that they could because who is going to bother to ask for it," he said.
Doughty said retailers have effectively begun surcharging for using cards so that an item priced at A$1,000 could lost as little as A$970 if the consumer paid with cash and as high as A$1,030 for some cards. Using Diners Club or American Express cards can bring an even higher cost, he explained.
Glenn Sargeant, executive manager for finance, with the Teachers Credit Union headquartered in Silverwater, New South Wales, backed him up.
Sargeant said that the loss of the credit card interchange has meant that the CU has had to start charging fees for cards, ATMs and others. The CU even started charging for rewards programs which, in turn, cut down on the programs and the card use.
He also seconded Doughty's observations about retail behavior, saying that it appeared that gas stations were the only retailers to have really let consumers know they can spend less money by using cash.
"From our perspective a lot of the card reforms have been a real boondoggle for the retailers," Seargent said, "even though the retailer had good intentions in putting them into place."