Australian Convenience Store News | Credit Card Charges

o Charge or not to Charge - with credit cards that is the question? You now have the right to charge extra when your customers pay by credit card. But, do you want to?

On our way home from a motorcycle rally at the end of the Australia Day weekend, my partner was charged 50 cents to use his credit card to buy fuel. He was not advised of the charge (at least, he can't recall seeing any poster at the console) and only noticed it when he went to sign the authorization slip. He wasn't happy - for that transaction, 50 cents was the equivalent of about 5% of the sale.

Since 1 January 2003, retailers have had the right to charge a fee as part of the Reserve Bank credit card reforms. In its review of credit card arrangements last year, the Reserve Bank concluded that the old system whereby the international credit card schemes could stop you passing on the merchant service fee was inefficient and unfair on customers that pay by other (lower cost) means.

The Choice is Yours
Now, you don't have to charge for credit card transactions. The reforms introduced by the Reserve Bank on 1 January just allow you to choose whether or not you pass on the cost of accepting credit card payments.

When Caltex tried to inform its franchisee network of the changes as well as providing system enhancements and POS material to accommodate franchisees that wanted to introduce a credit card charge, all hell broke loose in the media. "We did send out a memo to let franchisees know of the reform process," says Daniel Feiler, Business Communications Executive with Caltex. "And, at that time we were assessing whether to introduce the charge at our company-operated sites. The negative public reaction was a major part in our decision to not surcharge customers purchasing fuel with credit or charge cards."

In the Caltex network this decision applies to 71 company sites - about 3.5% of Caltex/Ampol retail outlets. Caltex does not know exactly how many franchised sites have requested surcharging signage as orders are being handled by a third party to ensure compliance with the Trade Practices Act. However, there appears to be only a small minority of sites charging for credit card payments.

Feedback from the other major oil company networks confirms the trend. None of the majors will be charging for credit card payments at the sites they control. This includes the Shell multi-site franchisees (the vast majority of the Shell network), the 300 sites in the BP franchise channel, and the 40 or so Mobil company owned and operated sites. Only a few independent retailers are introducing the charge.

"Any BP branded site within the dealer and distributor channels - as independent owner/operators - have the opportunity to introduce a surcharge based on their own individual decision," says Matthew Davidson, Electronic Services Marketing Manager, BP Retail. "Information received so far indicates that only a small number of these sites has established a surcharge."

The Reserve Bank argues that the community will benefit if customers pay for the service they use and those that choose a lower cost method enjoy better prices. But people don't seem to think that way. What they don't know doesn't seem to hurt them - consumers that are cross-subsidising by paying cash don't seem to be nearly as upset as credit card users charged for the first time, even though it may be fair to pass the charge on.

Obligations to your customers
Petrol retailing is no different from the rest of the retailing world, with large retailers choosing not to introduce a charge and some smaller retailers deciding that it is the best way for them to recover their costs. And it does cost. At an average rate of 2%, this represents approximately 2 cpl, a significant chunk of the average 5 cpl difference between the retail price and the terminal gate price. Credit cards are used in about 50% of purchases at service stations. However, you should also consider the cost to you of managing a higher level of cash in your business. Cash handling is a significant business expense. There may also be additional costs in modifying systems to account for the charge.

If, on balance, you decide the surcharge makes good business sense for you, make sure you are within the law. Your obligations to customers are spelled out in the pamphlet produced jointly by the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), called 'Merchant pricing for credit card payments'. Further information and a copy of the pamphlet can be obtained from either ASIC on 1300 300 630 / www.asic.gov.au or ACCC on 1300 302 502 / www.accc.gov.au. You can also visit www.rba.gov.au and look for the publication, 'Reform of Credit Card Schemes in Australia', under Payments Policy in the Payments System section of the website.

That should keep ASIC happy, but you should also be aware of the ACCC's concerns. Under the Trade Practices Act, you must make your own decision about whether to charge for credit card payments and the amount, and not enter into any agreements or understandings with other retailers.

The service station owner we visited on Australia Day was within his rights to charge the fee, but the owner was probably out of order by not providing sufficient information to his customers. More to the point in the real world, if you don't want an argument with a big hairy tattooed biker, tell him about the charge before he fills up his tank.

The material here should not in any way be taken as legal advice. If you are unsure of your obligations under the law, contact either the relevant authority or your lawyer.

Postscript
There is a bright spot in all this. The other Reserve Bank reforms introduce more competition in the credit card market and, from 31 October 2003, a reduction in the interchange fees that form part of the merchant service fee. That is, unless reforms are delayed by the legal action being brought by Visa International.