Credit Card Base

The Reserve Bank of Australia has been forced to play the “credit card regulator” due to the inexorbiatnt interchange fees that many providers charge their consumers. Nonetheless, RBA continues to challenge the card providers to reduce their fees as a competitive advantage.
RBA prefers that competition instead of a direct regulation be the basis of reducing the credit card fees. If providers wish to attract more consumers, they should be able to offer the most attractive packages at very reasonable rates. The trend to abuse the consumers’ need to have a credit card is deemed irresponsible banking.

We are all aware that many people just cannot live without their plastic. The lifestyle steeped in consumerism and materialism have pushed people to spend more than what they earned. Having a credit card, therefore, allows you to make purchases that you cannot afford for the time being. The deffered payments are very convenient because you can pay later when your salary check comes in. A credit card is a lifesaver in many instances.

Since a credit card is an intrinsic element in our modern lifestyle, the providers should be checked by government not to abuse their current market position. Due to this fact, the RBA has been deliberating how to beef up competition so that the credit card providers will be pressured to lower their fees. In fact, good progress has been made on this line, but the question still remains if the promotion is adequate.

Going back to the card payment reforms undertaken by RBA in 2007-2008, we discovered the following reforms. Reduced costs have been provided to merchants, competition was heightened and price signals have further improved. There is also increased transparency and enhanced access to one’s credit card accounts. This has been validated by the bank’s clear declaration of their policies on fees to new clients so that the individual is always aware and informed of the charges he will incur in his card usage.

Prior to the reforms, the interchange fees of credit cards have reduced from 95 basis points to 50. However, the said fee is still way too high with competition not being able to make a strong influence. This is why regulation remains and not yet discarded.

The RBA in August of 2009 did not implement a ruling to reduce further the interchange fees to 30 basis points. The board believes that good progress is underway by the industry. However there is still much to do especially in bringing back the confidence of the consumers that fees would be reduced. For now, direct regulation is still in place but leaving the door wide open for card providers to do their part in making their fees consumer-friendly.

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