Editorial: User-pays for credit cards fairer for all

Opinion

Inevitably, there will be much gnashing of teeth over retailers being given the go-ahead to pass on transaction fees to credit-card users. Many consumers have become accustomed to putting even the smallest purchases on the "plastic" without a thought for the actual cost and consequences. Such is the charm of this most convenient of spending accessories. But cost and consequences there are, and the Commerce Commission's acknowledgment of these is welcome.

The change, to take effect next April, is part of an out-of-court settlement between the commission and Visa, under which the credit-card giant has agreed to improve competition and disclosure. The commission had alleged Visa agreed with all parties to fix the fee paid by retailers on transactions, known as the interchange fee. Retailers are not allowed to recover this fee from cardholders. Therefore, it is passed on in the higher prices paid by all customers, regardless of the method of payment.

In the first instance, this is clearly unfair to consumers who use cash. They face a higher cost for goods or services through no fault of their own. In a user-pays society, those using a service should expect to pay its full cost. In theory, of course, this should mean that prices will decrease. A cost formerly attached to all goods to compensate for credit-card transaction fees can now be sheeted home to the user. Whether that reduction takes place is a moot point.

It did not appear, overall, to occur in Australia after that country's Reserve Bank regulated the level of interchange fees. But retailers will be able to encourage customers to pay by means other than credit cards, which suggests the pluses associated with cash transactions will gain recognition. That is already, unofficially, the case with the likes of taxi operators who may offer a cheaper price for non-credit-card purchases.

There will certainly be one advantage. Credit-card users will finally know the real cost of their transactions. No longer will this be built into product or service mark-ups. Such transparency is overdue. So, too, is the prospect of competition. Credit-card issuers will individually set the interchange fees that will apply to transactions using their cards. These will be publicly disclosed, and retailers can decide which cards they will accept. Some may accept Visa, while others opt for MasterCard on the basis of the fee they will pay. Again, theoretically, the consumer will be the ultimate beneficiary of competition that prompts lower interchange fees.

What happens in practice is debatable. It could be that credit-card use is so ingrained that retailers fear losing sales if they pass on transaction fees to cardholders. Some may be intimidated by customers threatening to take their business elsewhere. That may be especially the case during a recession. If so, there may be little change, and no chance that prices will fall.

That would be unfortunate. Credit-card users should accept the application of user-pays in the knowledge that they are the ones who decide if a retailer's surcharge is acceptable. If enough deem it unacceptable, it should be up to the merchant to find a card-issuer who provides a better deal. Cardholders could, as a form of protest, also use this method of purchase less, thereby reducing credit-card company profits. They could be nudged along that road by retailers who encourage cash payments.

The interchange fee in this country appears high by international standards, and the Commerce Commission has done nothing new. This path has already been trodden by regulators, notably in Britain and the United States. Intervention is appropriate in the interests of transparency and as a means of enhancing the chance of fair play for all consumers.