Credit card surcharge for paying with a 'premium' Visa or Mastercard credit card

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  peter_mcc on 28/11/2016 - 16:04

  +5

  My (small) business pays higher merchant fees for "premium" cards - the more premium the card the higher the merchant fee.

• 

  mooney on 28/11/2016 - 16:58

  +1

  Its this: The merchant has to pay a higher commission to Visa/MC for premium cards because of the higher number of points we earn on them.

  I am amazed it hasn't been addressed before to be honest- its a big cost to companies, and not only small ones.

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  ilikeradiohead on 28/11/2016 - 17:20

  +2

  The RBA has recently changed the rules on surcharges, although it doesn't apply to small businesses until September next year. The rules do two things: limit the surcharges merchants can pass on to consumers, and limit the total interchange fees that can be charged on bank issued CCs.

  The first one means that if a business accepts visa and chooses to levy a surcharge, it can only levy the cost of the surcharge to the consumer, and (I believe although I may be mistaken) that it has to be the 'lowest' rate from the scheme. So if a standard visa is 0.5% and a premium visa is 1.5%, the rate has to be 0.5%.

  The second one is yet to come into effect, but essentially limits the average interchange rate to (something like) 0.5% in total. This may mean that the rewards from premium cards comes down, as a lower interchange fee means fewer bonuses to pass on. Until the rules come into effect we will not know for sure though.

  RBA Press Release
  Q&A for the new system

  • 

    mbck on 28/11/2016 - 17:27

    I think most rewards cards have graded down their bonuses/points system. Especially Citibank. ING also lost its 2% back.
    See more at pointhacks

    Even AMEX is changing it's free flight benefit to a travel credit (for the Platinum Edge card) for new applicants.

  • 

    Baysew on 28/11/2016 - 18:00

    +2

    The first one means that if a business accepts visa and chooses to levy a surcharge, it can only levy the cost of the surcharge to the consumer, and (I believe although I may be mistaken) that it has to be the 'lowest' rate from the scheme. So if a standard visa is 0.5% and a premium visa is 1.5%, the rate has to be 0.5%.

    From RBA Blurb

    Merchants may choose to set the same surcharge for a number of different payment systems, provided that the surcharge is no greater than the average cost of acceptance of the lowest cost system included. For example, a merchant may choose to set the same surcharge for two credit card systems, which have average costs of acceptance of 1 per cent and 1.5 per cent. In this case, the maximum common surcharge that could be charged would be 1 per cent. However, if the merchant wished to surcharge the two systems separately, it could charge 1 per cent and 1.5 per cent as appropriate. In this example, the merchant would not be able to blend both these costs into a 1.25 per cent surcharge, since it would be surcharging excessively for the scheme that cost 1 per cent.

    So in your example a merchant can't 'average' a surcharge to 1%, as that would result on an overcharge on the standard Visa. It could however surcharge separately, depending on card type. ie surcharge 0.5% on standard and 1.5% on Premium cards.

    The RBA also talks about 'price signals'

    When merchants have the right to apply a surcharge to more expensive payment methods they are able to provide price signals that encourage consumers to use less expensive payment methods. By helping to hold down payment costs, the right to surcharge helps to hold down the price of goods and services charged to all consumers.

    So in the OP's example, the merchant is wearing the cost of cheaper standard Visa, but surcharging on the Premium Visa.