THE federal government has fallen short of complete reform on the vexed issue of credit card surcharges to consumers by announcing that it would only clamp down on “unfair credit card fees”.

Treasurer Scott Morrison says that, from now on, credit card fees “should pass the fair dinkum test”, but he misses the point. Merchants should not be hitting customers with surcharges at all.

The government is responding to irrefutable evidence of ongoing gouging of consumers buying goods and services with credits cards, especially where there is a narrow choice of merchants as with airlines, other travel providers and utilities.

An estimated $1.6 billion is being charged each year on a fee that should never have been allowed to have been charged in the first place.

But the politicians have become dazzled in the spotlight of the moment and focused solely on the issue of excessive fees without taking a holistic view of the issue and seriously questioning why any fees should be charged by credit card merchants in the first place.

It used to be that merchants were forbidden by the credit card operators to charge a fee for accepting a credit card. But in 2003 the Reserve Bank of Australia (RBA) took it upon itself to order the removal of these restrictions on what were very dubious grounds, especially as the RBA’s key subsidiary is a money printing business.

Egged on by the big retailers, the RBA and the government were sucked in to allowing merchant surcharges so that retailers could recover the cost, and more, of their collections.

In doing so the RBA created the ridiculous concept that businesses should charge their customers a fee for paying them money.

The RBA’s thinking was remote from business reality because all methods of collections have always been a cost to business. Getting people to settle their accounts has always been expensive from the cost of chasing slow payers, the cost of running overdrafts to cover outstanding invoices and selling invoices at below face value to a factoring house, or invoice discounting to customers who meet payment deadlines.

The RBA claimed that credit card users were subsidised by nonusers of credit cards. The RBA said that merchants would build the costs of accepting card payments into the overall prices of their goods and services, and these were paid by all customers regardless of the payment method they used.

But that is nonsense because merchants have to build the costs of all methods of payment into their margins, not just credit card collections.

Cash costs the labour to put the money through the till, till reconciliation, counting, recording and deposit at the bank via an inevitable queue. Same with cheques which are not always honoured or have to be reprocessed because dates, payee details or signatures are missing or wrong.

A credit or debit card is arguably the most efficient way of gathering sales revenue for a business in a most timely and secure manner. It’s money in the bank.

In fact, online businesses like airlines, hotels, retailers and so on could not even operate their businesses without credit card payments and to charge online customers a fee for using the very system that underpins the operation is ludicrous.

Another RBA furphy was that the restriction on surcharging customers apparently “masked price signals to cardholders about the relative costs of different payment methods”. But customers were never aware of the cost to business of cash or cheque payments either. Why were credit cards any different?

And there was a price signal and that was the one exercised by the merchants, many of which chose not to accept cards like American Express and Diners which charged merchants higher commissions than Visa and Mastercard.

Because of that clear price signal Visa became the card of choice of most merchants. The competitive discussion was between merchants and card operators which, in our company’s experience, would respond to negotiations to reduce commissions especially as revenue on that card rose. The conversation was that if you lower the commission we will steer more customers onto your card.

Indeed, in recent discussions with American Express, Amex says it is prepared to lower its fees to nominated regular customers in order to encourage them to pay on an Amex card.

The Turnbull government might also note that most small businesses think the surcharge stinks. They don’t charge it because they don’t like paying it when they are on the other side of the counter.

The RBA admits that surcharging by merchants has been very slow to take on and its own figures show that only 25 per cent of small companies levy surcharges on their card-paying customers.

Even among very large companies less than half are levying surcharges for card use. So the $1.6 billion is not being gathered uniformly across the business world and is in fact being shared by a few and especially those who enjoy products or services where there is very little choice for consumers but to use a card to make a payment.

By John Mellor