The rort which has seen consumers charged exorbitantly each time a credit card is swiped through an EFTPOS terminal could soon be ended, putting money back into the pockets of everyday Australians.

In the next few months, a special arm of the Reserve Bank known as the Payments System Board will finalise new rules governing credit card fees in the Australian market.

Expectations are growing that these reforms will result in a dramatic lowering of credit card fees and, potentially, the abolition of surcharges paid by consumers on debit card transactions.

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Under the reforms, the fat, five per cent surcharges levied by taxi companies in Sydney and Melbourne will become a thing of the past, as will the outrageous fee gouging on credit card payments by airlines.

Early warning

RBA Governor Glenn Stevens sent shudders through the ranks of the credit card companies and the banks in April when he publicly questioned who was actually paying for the rewards benefits on his platinum American Express card.

Mr Stevens was hitting on an important feature of the existing credit card fee arrangements, which mean that people using standard credit cards are effectively subsidising the benefits enjoyed by members of lucrative card loyalty schemes.

“When I use my platinum Amex card and get points, someone is paying for that,” he told a conference in April.

“Although the wide range of interchange fees is not unique to Australia, we would want to ensure so far as possible that the regulatory framework does not contribute to declining transparency of individual card costs to merchants.”

The governor’s comments are a strong indication the pending reforms will likely slash the fees on standard credit card payments.

Each time you swipe your card, your request to pay a retailer triggers a loop of electronic signals travelling back and forth between card companies and financial institutions.

While none of us can see these digital signals, the end result is that interchange fees usually equivalent to 0.5 per cent of your payment are levied on the retailer.

This is how banks that issue credit cards make money every time we pay with one.

They levy what is known as an interchange fee on retailers, who then might pass on a surcharge to customers or simply include the cost in the price of the goods and services we buy.

The fee is akin to an invisible Goods and Services Tax, except that banks, rather than the government, are making us pay it.

And it is worth billions in annual revenue for the financial institutions – the banks, credit unions and card schemes such as Visa and Mastercard.

The banks’ fee party might soon be over

The question on the lips of all industry players is: how far will the reforms go?

The consensus among banks and payments industry providers consulted by The New Daily is that the interchange fee will be lowered to at least 0.3 per cent from the current average of 0.5 per cent.

That would bring Australia into line with European Union countries.

The current interchange fee system is structured in a way that enables big retailers such as Coles and Woolworths to negotiate lower fees when customers pay with credit cards.

The New Daily has learned that big merchants are paying fees as low as 0.2 per cent to banks that issue credit cards.

To make up for this lost revenue, the banks then sting fees of up to two per cent on small businesses, who then surcharge customers.

David Murray’s inquiry into the financial system recommended that the RBA introduce so-called “hard caps” on interchange fees to prevent the banks from gouging small merchants.

The central bank is expected to implement this proposal, the effect of which will be to introduce a single flat rate on all businesses.

Fees on debit cards could be reduced to zero

The banks incur significantly higher costs for processing credit card payments compared to debit cards.

However, under the current fee system these cost differences are not always reflected in the surcharges borne by debit cardholders.

Many retailers often surcharge debit card payments at the same rate as credit cards.

The Murray inquiry has called on the RBA to prevent this from happening in the future, insisting that low-cost payment methods such as EFTPOS should be cheaper for consumers to use.

Processing costs are so low on EFTPOS transactions that the Reserve Bank may decide to introduce a blanket ban on interchange fees for customers paying with debit cards.

New Zealand and Canada have already introduced such bans.

Such a ban would be a disaster for the big credit card schemes – Visa, Mastercard and Amex – because it would establish big incentives for consumers to pay with low-cost debit cards.