The Cost and Efficiency of Credit Card Schemes – A Comparative Study on the Australian Regulatory Reform for Credit Card

As to the no-surcharge rule, for consumers, when they purchase with credit
cards, they don’t have to bear additional cost, though credit card is among the
most expensive payment instruments, but benefit from delayed-payment without interest. On the other hand, the merchants are confronted with the customers’ demand
to accept credit card transactions even when VISA and MasterCard charge
them high fees for using their services. Nowadays, the merchants don’t have any
option but to accept credit card transactions since majority of consumers enjoy
the convenience of creditcard payments. Barred by the “no-surcharge” requirement
from VISA and MasterCard, will the merchants passively shoulder the high
service fee for accepting credit card transaction? Merchants will raise the price of
every items slightly just enough to cover their cost without attracting consumers’
complaints. Consequently, the general consumers in the economy bear the credit
card transaction cost, resulting in the cross subsidization.
By abolishing the no-surcharge rule, merchants have the power to set different
rules according to the payment instruments used. With additional fee charged,
people will make payment decisions based on the cost and benefit analysis, but
not simply using credit card as payment with every transaction. Confronted with
downward sloping usage rate, VISA and MasterCard may be motivated to make
the credit card scheme more efficient.
In long term, the credit card scheme will work in the way that best
contributes to the efficiency and competition.