Visa and MasterCard re-pricings spark surcharge storm

George Lekakis Payments, mobile & wallets
Bulging surcharges lie ahead for Vodafone customers, thanks to MasterCard and Visa and the telco's banker.
Bulging surcharges lie ahead for Vodafone customers, thanks to MasterCard and Visa and the telco's banker.

A hefty surcharge increase by Vodafone Australia on credit and debit card payments for post-paid services will generate a new fuss on the pricing practices of major banks and the country’s leading card schemes.

Vodafone revealed on its website yesterday that it will be increasing the surcharges most customers incur when they pay their monthly bills using a MasterCard or Visa payment product.

The rises, which take effect from 18 November, extend to thousands of customers who pay through direct debit arrangements with the telco.

Vodafone users who pay with a standard credit card marketed by Mastercard will see their monthly surcharge more than double - to 0.676 per cent from 0.318 per cent.

For customers who pay with a Visa credit card the standard surcharge will rise more than 15 basis points to 0.578 per cent.

Debit card users will also be hit with higher fees. Surcharges paid by holders of standard MasterCard debit cards will rise by more than eight bps to 0.456 per cent, while no-frills Visa debit cards rise two bps to 0.396 per cent.

In response to questions from Banking Day, Vodafone defended the revised surcharging arrangements saying they were a direct response to repricings by MasterCard and Visa.

“We recently communicated to our customers that the cost of acceptance fees charged by Mastercard and Visa are increasing, and therefore there will be a corresponding increase in credit card fees for post-paid customers from 19 November,” a Vodafone spokesperson said.

“This change is in line with the law and ACCC guidelines … and we communicated this change to our customers to ensure they remain fully informed.”

Vodafone’s explanation of the surcharge increases contradicts recent guidance given to merchants about the likely impact of moves by Visa and MasterCard to reset their interchange schedules.

National Australia Bank states on its website that Visa’s latest resets would result in lower interchange costs for utility providers.

The bank did not furnish any details about merchants, such as telcos, incurring higher costs.

“Depending on your card mix acceptance, you could see a reduction in your interchange rates,” the bank tells merchants on its site.

“The new interchange rates will be applied to your merchant statements and will show your cost of acceptance based on the new rates.”

Visa and MasterCard yesterday declined to furnish information on how the overhaul of the schemes’ interchange schedules had contributed to the spiralling acceptance costs at Vodafone.

Among the most controversial features of the telco’s new surcharging regime are monstrous fee hikes earmarked for customers who pay with cards issued outside of Australia.

Vodafone revealed that the surcharge for such transactions routed through MasterCard’s payments network would soar to more than 3.00 per cent from the current rate of 0.268 per cent.

The same transactions routed through Visa will incur a surcharge of 2.97 per cent – up from the current rate of 0.41 per cent.

The handling of cross-border payments and fees billers may surcharge is turning into a major stoush between Australian retailers and the global card schemes.

There is heightened merchant concern that banks are directing merchants to route China UnionPay transactions in Australia through the Visa and MasterCard networks.

Russell Zimmerman, chief executive of the Australian Retailers Association, told Banking Day last night that he had requested an urgent meeting next week with payments officials from the Reserve Bank to highlight potentially anti-competitive conduct by the banks.

“Banks are now telling retailers they have to route China UnionPay payments through MasterCard or Visa and this is adding to their costs of accepting payments,” Zimmerman said.

“It’s a matter of growing concern for ARA members.”