Protecting consumers from card payment fees

Last week, global payments company Visa severed links with two taxi operators here when they refused to eliminate a 10-per-cent surcharge on card payments, which adds less than S$1 to most fares.

The taxi surcharge started in the mid-1990s. Even though Visa policy did not allow surcharges, it apparently wanted taxis to accept card payments, and it made an exception to allow the levy of a 10-per-cent “administrative charge”.

After nearly two decades, Visa reversed course. Its Country Manager for Singapore and Brunei, Ms Ooi Huey Ting, told the media that “surcharging unfairly shifts the cost of doing business onto consumers” — although she focused just on taxis rather than all companies with surcharges.

So, from today, ComfortDelGro and TransCab will not accept Visa card payments — but this is not likely to affect most local passengers. Only 1 per cent of taxi riders pay with Visa, according to the card company, and many who do may be foreigners.

If anything, the bigger issue is all the other organisations in Singapore that charge an extra fee.

It is not uncommon for electronics stores at Sim Lim Square, say, to tack on a fee of 3 to 4 per cent for payments by credit card. Asking to pay with a card at a small travel agency elicits a similar response, and budget airlines openly charge a “service fee” for credit cards. These fees can easily total tens or hundreds of dollars, and Visa has said a survey last year showed at least 40 per cent of consumers in Singapore had been charged a surcharge.

And what of government agencies? The Central Provident Fund Board is one which says that “an administration fee will be charged” for credit card payments.

OPPOSITE TREND ELSEWHERE

Visa says it has been working, together with other financial institutions, to reduce surcharging in Singapore and provide greater protection to consumers. This has included spot checks and warnings issued to retailers. An audit last August found 9 per cent of merchants here imposed surcharges or minimum spend policies — but this had shrunk to 2.8 per cent by November.

Yet, interestingly, the anti-surcharge push comes at a time when other countries are moving in the opposite direction.

In Australia, for example, the Reserve Bank of Australia (RBA) imposed standards requiring the card schemes to remove their “no-surcharge” rules in 2003. The standards also lowered the fee the merchant’s bank pays to the card issuer’s bank, and the RBA said average merchant service fees fell by around 0.6 per cent.

When surcharges started to get out of hand and rose too high, the RBA revised the rules in March this year, and now allows card schemes to “limit a merchant’s surcharge to ‘the reasonable cost of acceptance’.” (The United Kingdom, which has also allowed surcharges for many years, recently also banned excessive surcharges.)

In the United States, merchants frustrated with paying high fees to banks for accepting credit cards took things into their own hands and filed a lawsuit against Visa, MasterCard and large banks to allow them to pass payment-processing costs on to consumers. The case was settled late last year, although some appeals are still ongoing, and merchants can now add a fee for credit card payments.

GRIT THEIR TEETH

Perhaps that regulatory debate on who should bear the cost, and how much of it, should be revisited in Singapore.

The dilemma for card-issuers is this: Bringing surcharges to the fore could well run Visa (and other card companies) the risk of merchants banding together to push for expressly allowing surcharges, as happened in the US.

It could also beg the question of why legislators or regulators here have not put rules like Australia’s in place, to reduce interchange rates.

Instead, companies in Singapore may fume about the fees they pay the banks for accepting credit cards — but most go along with Visa’s rule disallowing surcharges.

At merchants that still add a surcharge, consumers often just grit their teeth and pay if they want to use their credit card. Although they can appeal to their bank — and stores that levy a surcharge are occasionally cut off from accepting cards — the fees are more often hidden and consumers have little recourse. (As one TODAY reader online points out, stores might for instance give a “discount” for payments by cash instead.)

Meanwhile, Mastercard’s stand is that while “we do not encourage surcharging ... we do understand there is a fine balance between giving consumers payment choices and managing the cost of acceptance”.

As for its part, if Visa really wants to be seen as helping consumers further, it should publicly go after the bigger issue rather than a relatively minor surcharge in taxis that it has allowed for so long, and that may affect relatively few of the people who live here.

Ron Tan has been involved in Singapore’s retail banking scene for many years.