Australia is proposing major reforms to card payments, including banning debit surcharges, lowering credit card interchange fees, and increasing fee transparency—all aimed at reducing costs for merchants. In the U.S., the Merchant Payments Coalition is pushing back against large bank profits from interchange and supporting the Credit Card Competition Act to foster network competition and lower fees. JPMorgan Chase plans to charge fintechs for accessing customer financial data, coinciding with legal challenges to the CFPB’s open banking rule. Meanwhile, consumer fears around fraud continue to hinder confidence in online payments, as shown by recent survey data.
Welcome to Today in Payments, I’m your host, Patti Murphy, here with your weekly dose of payments notes.
Australia Wants to Lower Interchange, Ban Surcharging
The battle over the cost to process credit and debit card transactions continues. This time, Australia is the setting.
The Reserve Bank of Australia has issued what it calls a “consultation paper” that proposes three major changes in what merchants pay to accept cards.
The paper offers three major changes:
Eliminate surcharges on Visa and Mastercard debit card transactions. “Businesses are increasingly charging the same surcharge rate across debit and credit and there are significant challenges with enforcing the current surcharge rules.” Those rules dictate that any surcharge cannot exceed the cost of processing.
Lower the interchange cap on credit cards. The current cap is 50bp; that would drop to 11bp. “This could save businesses around $1.2 billion a year in interchange fees,” the RBA wrote. Small businesses would benefit the most, it added.
Require the card networks and large acquirers to publish the fees they charge. “Improving transparency” will help businesses better understand the fees they are charged and shop around for better deals.
The changes could take effect as early as next year and would not require any legislation or additional industry consultation.
Closer to home, the Merchant Payments Coalition is amping up its battle against interchange. The latest salvo centers on the profits being reported by large banks.
“Banks are bragging about higher profits,” MPC stated in a press release. It said interchange is tantamount to “price fixing,” and accused the card brands of stymieing new technologies that could lower fees.
JPMorgan Chase, for example, reported net profits for the second quarter of $15 billion on revenue of $44.9 billion. Chase, it added, is the largest issuer of credit cards. In announcing the results, JPMorgan Chairman and CEO Jamie Dimon welcomed “potential deregulation” and said “we look forward to future proposals” from the Federal Reserve.
One proposal that is pending before the Fed would reduce the cap on debit card interchange, which seems to have been placed on the back burner. MPC is betting that is not the case.
It also used the press release as an opportunity to push for the Credit Card Competition Act. Under the bill, banks with at least $100 billion in assets would enable credit cards to be processed over at least one network not affiliated with Visa or Mastercard, such as Star, NYCE, or Shazam. The measure is expected to result in competition over fees, security, and service that would save merchants and their customers $17 billion a year, by the MPC’s reckoning.
A report by CMSPI, a consultancy heavily relied upon by merchant groups, estimates merchants paid $16.4 billion in interchange in 2023.
JPMorgan Chase is planning to impose fees on financial technology firms that access its customers’ financial account data, according to reporting by Bloomberg News.
The mega-bank has sent pricing sheets to data aggregators outlining new charges that may vary by use case, with payment-focused firms facing the highest fees, according to Bloomberg’s reporting. As Barron’s wrote: In a world where data is as valuable as gold, this seems like big news. After all, fintechs currently rely on free access to customers’ financial data to process transactions.
News of the fees comes to light as banks and fintechs litigate in federal court over the future of the CFPB’s open banking rule. Banks have sued to block the rule, which requires those with more than $850 million in assets to make their customers’ financial data available to consumers and the third parties they designate free of charge. The information that would have to be made available includes historical transaction information, account balances, upcoming bills, basic account verification information, and information needed to initiate payments.
It’s not entirely clear the rule will take effect in the fall, as planned, as the CFPB and its instruction to create such a rule came from the Dodd-Frank Act, which Republicans fiercely oppose. Also, the White House has been keeping the CFPB on a short leash.
Consumers may be okay about making online payments, but they don’t feel all that secure. Research by Kaspersky Lab and the researchers at B2B International reveals that 60% of respondents would prefer additional security measures to protect their financial data. What’s more, 75% of those surveyed expect banks, online payment systems, and online stores to protect their computers and mobile devices from financial fraud.
While it’s true that many folks are aware that they need to implement their own security measures in addition to the protections offered by their payment providers, 20% place full responsibility for the security of financial transactions on the banks and 15% believe they themselves are solely responsible. 60% of those surveyed believe that both users and banks should be responsible for the protection of financial information.
Artificial intelligence may be all the rage, but innate intelligence can count for a lot. That’s the lesson from a recent data breach suffered by McDonald’s, which exposed the personal information of about 64 million job applicants. The culprit: Olivia, an AI chatbot.
The breach wasn’t the result of sophisticated malware. Rather, the hackers simply guessed the password: 123456.