War is looming but it’s not in the Middle East. No, it’s between the Government and the Reserve Bank against global credit card companies Visa and Mastercard. In response, they’re threatening to stop making refunds to customers who’ve been defrauded by scam merchants of all kinds.

This threat has been the reply from the big credit card organisations following the central bank’s plan to restrict fees these businesses have been imposing on their customers.

As a response to the cost-of-living pressures on everyday Australians because of high inflation and the associated elevated interest rates (which don’t look to be reduced any time this year), the Albanese Government plans to stop retailers charging customers for using debit cards for sales from the end of 2025.

On top of that, the RBA is toying with the idea of restricting what the credit card companies can charge retailers. And because these two US giant corporations have such market power, with only real competition from American Express (which is a more expensive credit card), it’s understandable that the central bank wants to regulate their fees.

This is especially so since Covid has made us more addicted to credit and debit card usage. In fact, some shops refuse to accept cash, making card usage compulsory for the consumer.

The AFR’s James Eyres has broken the story and reported the views of Richard Wormald, local president of Mastercard. “There is no such thing as a free lunch,” he said on Wednesday. “You can’t only look at one side of the equation because there are unintended consequences on the other side.”

What’s the free lunch?

“Mr Wormald said protections offered by Mastercard and Visa to merchants and customers who used their network were ‘not free’,” Eyres revealed. “Those protections include refunds for customers who have not received goods purchased using the cards. Merchants are also protected against various frauds”.

An example was provided to explain the point. Here’s Eyres again: “For example, customers who purchased airfares on Regional Express were refunded promptly after the airline collapsed in July. Customers who paid using Eftpos became unsecured creditors of the failed carrier.”

So, what we have here is a simple situation of both the Government and the RBA deciding to eat into the profits of Mastercard and Visa. In response, these companies are saying if you’re going to mess with me, then we’re going to mess with you.

The Government, the RBA and the card’s consumer and business customers wouldn’t like the implications, but shareholders of Visa and Mastercard would support their business reaction. In an era of escalating scams, this threat to stop refunding, especially when the consumer is the knucklehead who makes an honest mistake, means this is a serious blow up for the card companies, the RBA and the Government.

Part of the RBA’s interest in reducing the fees that the card companies charge to retailers was because of a recent spike in the money paid to these card companies, but these guys argue that’s because there’s simply more online sales post-Covid.

This has also raised the level of fraud that the card companies have to compensate customers for.

This isn’t an open-and-shut case of the card companies being the bad guys, but given the Government faces an election next year, and its popularity is waning, it’s highly likely that credit card companies will join the supermarket giants and other big businesses who are tagged as Public Enemy Number One.

(The Ayres article is at https://www.afr.com/companies/financial-services/mastercard-visa-make-pre-emptive-attack-on-rba-card-fee-restrictions-20241016-p5kin0 )