RBA Interchange Decision is Missing the Point

Ingo Noka
Opinion

In reference to the famous first line of the communist manifesto "Ein Gespenst geht um in Europa – das Gespenst des Kommunismus.", I venture that a spectre is haunting the payment industry — the spectre of interchange regulations.

The most recent example is a "…​ Review of Merchant Card Payment Costs and Surcharging (the Review) as part of the RBA’s regular review of its retail payments regulation …​" (1)

Unfortunately, as expected, banks and regulators only know one set of tools - regulations, compliance, bureaucracy. And if all they have is a hammer, then every problem looks like a nail to them.

I find their approach unconvincing. If prices are high, then there is only one reason: lack of competition. And that lack of competition is caused by banks using their government enforced monopoly position in the finance system to keep competing payment systems out.

I have more sympathies for the arguments laid out in the judgement of the UK Competition Appeal Tribunal (2) in 2025. The gist of their judgement is that interchange fees are not necessary for the payment schemes to work.

The judgement contains many juicy tidbits, such as "There is no correlation between the interchange fee and the costs that it is supposed to discharge or compensate for. …​ The interchange fee represents an arbitrary money flow from one set of market participants (consumers in the Acquiring Market, the Acquirers) to another set of market participants in a different market (consumers in the Issuing Market, the Issuers)" (page 151), or "There is …​ an absence of competition amongst the Schemes in terms of Scheme Rules and Scheme Fees that is generated by the distortions created by the Multilateral Interchange Fee" (page 153).

The RBA makes a couple of points to justify the new regulations. At the risk of repeating myself (see this post), here is my opinion on each of them:

  1. Lack of price transparency prevents merchants from finding better deals.

    Really? Merchants have been complaining about transaction fees forever, but they could not be bothered to ask around for better deals? I don’t think so. To me it looks more like the fees are not really that bad. And as the saying goes: Any price a customer is willing to pay, is the right price.

  2. Acquirers pocket savings from lower interchange fees.

    Of course, they do! Any participant in a functioning market will always try to reduce cost and keep prices at a level where customer still buy their product. Once again it comes down to the lack of competition. If there was proper competition, there would be market participants who reduce their prices based on savings on the cost side to take market share from those who don’t.

  3. End of surcharging for card payments.

    In any open society with a functioning market economy there is absolutely no reason for the government to dictate what anybody could charge for their product or service, or what cost they can include in the price calculation. Besides, card users kept using their card despite the surcharge, which means they see enough value in using that product to be willing to pay for its use. That’s the way it should be.

  4. Reduction of interchange fees.

    The government setting price caps! Has this ever worked? I would say that interchange fees are an anomaly that should not exist. If the issuer provides value to the customer by giving them a payment instrument that the customer is happy to use, then the issuer should charge a price for that. If their payment instruments are truly so great, then their customers should be happy to pay that price.

    There is no reason for merchants to pay the fee on behalf of the card user as well as if only the merchant derives value from an electronic payment transaction.

    Having said that, I would argue that with proper competition there would be payment schemes without interchange fees, and then it would become apparent very quickly which system wins the competition for card users and merchants. There would be no reason for the government to fix a market which is not a market anymore the moment the government decides prices.

References

(1) Reserve Bank of Australia, “Review of Merchant Card Payment Costs and Surcharging: Conclusions Paper,” Reserve Bank of Australia, Sydney, Mar. 2026. [Online]. Available: https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/conclusions-paper/pdf/conclusions-paper.pdf.

(2) C. A. T. (CAT), “Judgement - UMBRELLA INTERCHANGE FEE CLAIMANTS v UMBRELLA INTERCHANGE FEE DEFENDANTS.” [2025] CAT 37, Jun. 2025, [Online]. Available: https://www.catribunal.org.uk/cases/151711722-um-merchant-interchange-fee-umbrella-proceedings.

Copyright Sources

FreeSVG.org, “Ghost Communism 1432 1.” https://freesvg.org/ghost-communism-1432-1 , Mar. 08, 2020.

OpenClipart, “GlitchSimplifiedMarketSign.” https://freesvg.org/glitchsimplifiedmarketsign , Apr. 26, 2021.