Friday, October 07, 2011

Price Gouging

The Reserve Bank of Australia has been conducting an inquiry into electronic payment fees charged by merchants. That is: the fee added on when you pay by credit card "That will be an extra 3% sir, for payment by credit card".

This fee is a stiff one. It was costing me roughly $1,000 per week, there is little choice but to pass it on. Like all such charges & price rises, it is quite some time before most people actually pass it on (contrary to popular/journalist belief about "greedy businesses").

The fees charged to the merchant can vary greatly. A big merchant, with huge receipts by card, may be paying about 0.5% of every transaction. A small merchant, say a tiny coffee shop which doesn't take much card, may be (effectively) paying as high as 7%, or even more if you pay by American Express. This is why many small business will not accept American Express, they cannot afford to.

It is also why the fee charged by the shop can be quite high if you pay by American Express.

If the Reserve Bank carries out its promise, and next month makes it illegal for merchants to charge a fee (or caps the fee) expect to see many businesses henceforth refuse to accept credit card payments.

Here is a totally fictional scenario, about a hotel. This hotel is fictional, and is in no way meant to depict my place:
Currently a room is (say) $100 per night. Pay by credit card = $100 + 3% fee = $103 per night.
Then the RBA ups & declares the 3% fee to be illegal?
In this (totally fictional) scenario, the room rate is then changed for 2012 to $103 per night. Pay by cash or other cost free method, as many do (eg. account, direct deposit, etc), and this fictional hotelier will be kind & allow you a "once off" $3 per night informal discount.

The enquiry has recieved submissions from many interested parties. Including the credit card companies.

Visa & Mastercard had much to say in their submissions about merchants "gouging" customers, by as much as 1% in some cases.

Golly gee whillikers! Look who is talking! How is their form? Anybody ever noticed what the "extra fee" for late payment is on their Visa or Mastercard? Anybody ever noticed the interest rate on their Visa or Mastercard?

1 comment:

Anonymous said...

I will no longer be accepting credit cards at my business. I simply cannot afford it.
Transaction fee, batch fee, monthly fee, and an annual "compliance fee", which if you don't pay for and complete results in an annual "non-compliance" fee.

Accepting credit cards has cost me more in fees than it has generated in business. I am done with credit cards.