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Banks reap card fee bonanza

A NEW report by the Reserve Bank of Australia and the Australian Competition and Consumer Commission has revealed significant hidden costs in credit cards, debit cards and ATMs.

These hidden costs are due to the interchange fees financial institutions pay each other for processing credit and debit card transactions.

Last year, interchange fees cost $550 million from credit card transactions, $230 million from ATM transactions and $100 million from EFTPOS transactions.

The report found credit card issuers earned revenues 39 per cent above their costs, while credit card acquirer’s revenues are 64 per cent above costs.

Ultimately, all consumers have to pay higher prices to meet credit card interchange fees. These high margins cannot be adequately explained by the need to gain a competitive return on capital and interchange fees contribute to these high margins.

If the interchange fees were based on generally recognised cost-based methodology, the fees in Australia would be significantly lower.

The information in the report was collected from all financial institutions involved in ATM, credit card and debit card transactions, as well as from MasterCard, Visa and Bankcard.

Detailed costs and revenue data were collected from a group of nine financial institutions, which are involved in more than 95 per cent of debit and credit card transactions in Australia.

n Professor Allan Fels is chairman of the Australian Competition and Consumer Commission.

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