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Understanding the recent changes to electronic payments
Tuesday 27 July, 11:00am (AEST)Guest Speaker – Dean LongAFTA’s National Manager – Strategy and PolicyEmail: [email protected] or twitter @Dean_Long13
House Keeping;
• Session will be recorded
• Presentation will be available at www.afta.com.au
• Audience will be on mute
• Q & A can be submitted throughout the presentation but will be answered
at the end of the presentation
Introduction
Key terms
Why have changes been made?
Merchant Service Fees
Surcharging
When will I be effected?
What’s next?
About DeanAfter starting my travel and tourism journey on Fairstar the fun ship in 1988, tourism and travel became a passion and a profession.
I joined AFTA in May 2014 and lead AFTA’s renewed public policy advocacy program following the removal of travel specific legislation in late 2014. Over this period I have been largely working on the major issue of electronic payments in travel. This includes agents access to merchant facilities and the Government’s review of credit card regulations.
Previously I was the Senior Adviser in the NSW Government on tourism and hospitality policy following working for Tourism NSW. I am is also a member of Western Sydney University’s External Advisory Committee for Bachelor of Tourism Management.
Card schemes – Provide the systems to facilitate payments
Provide the network to process the payments between the acquirer and the customers bank
Card type refers to either credit or debit / prepaid
Interchange fees – Charged to a travel agent by your acquirer
Paid by you to your customers card issuer
Fees are set by MasterCard and Visa.
Charged to the Merchant typically as part of your merchant rates
Merchant Service Fees (MSF) – Charges to a merchant to accept electronic payments
Charged as a percentage of your transaction value
Interchange fees
Card scheme fees – international cards
Account fees – terminal access
Forward Delivery Risk (FDR) – typical retail environment
General chargeback risk to Australian retailers; max 30 days
Australian consumer purchases consumer goods using a credit card
Australian consumer receives and consumes goods. Primary risk to
merchant is fraudulent cards
FDR - For Australian travel agencies
Chargeback risk to Australian travel agents; 70 – 100 days and a minimum of $5.4 billion AUD
Australian consumer purchases travel using a
credit or debit card
Travel agent fulfils obligations and pays suppliers (within an average of 14 days) eg: airline, sightseeing tour and resort. The
travel agent, not the supplier, is at risk of a chargeback if the supplier goes insolvent or otherwise fails to perform.
Why has it changed
Financial System Inquiry recommended changes to the electronic payment system in Australia.
5000 of the 6500 submissions complained about surcharging.
The RBA had developed the new standards following 18 months of consultation.
Changes to Interchange fees - credit
NEWCredit card interchange
Now capped at 0.8%Average every 3 months must be 0.5%
OLDDifferent size merchants had different
ratesAverage every 3 years must be 0.5%
Merchant Service Fee - it will change
Interchange rates will be capped and assessed more regularly.
The cost to you as a merchant should reduce by 1 June 2017.
Customers who use cards for reward points will most likely see a reduction in the number of points they can earn.
What has changed for Surcharging?
You can still apply a surcharge.
You must only surcharge the actual cost.
- It must be demonstrable and not include any internal costs.
You are not allowed to blend to create an average surcharge.
5 permissible costs that can be included in your surcharge
Merchant fees
Terminal rental and servicing
Gateway services
Annual Statement
Fraud prevention services
The cost of insurance for Forward Delivery Risk (no
fault third party charge back)
External provider
Annual Statement – MSF from your acquirer
Terminal rental
Gateway feesMerchant FeesInternational
fees
Companion Amex
Visa credit and debit
MasterCard credit and
debit
Fraud Prevention
Some online businesses have substantial risk of
fraud.
Engage independent companies to minimise
this risk
The cost of insurance for (FDR) - no fault third party chargeback
Consumer pays using a credit card and the travel agent completes four different transactions to suppliers
Australian consumer invokes a chargeback because the
sightseeing tour did not deliver on the contracted service due
to insolvency
Agent becomes a creditor to the insolvent sightseeing tour, even though they have fulfilled their service to the
customer.
How do you work out the new surcharge?
You will need all of the information we have just spoken about:
• Annual Statement
• Receipts from your service providers for electronic fraud prevention and FDR insurance.
Annual Statement – Acquirer (financial institution)
Card Scheme Card Type Number of transactions MSF as a percentage
MasterCard Credit 369 1.1
MasterCard Debit 200 0.1
Visa Credit 342 1.2
Visa Debit 200 0.1
Amex Companion Credit 90 1.6
Total credit n/a 801 n/a
Total debit n/a 400 n/a
Annual Statement - Amex
Card Type Number of transactions MSF as a percentage
Green 45 2.1
Black 20 3.2
Total 65 n/a
External Providers – Fraud prevention and FDR insurance (hypothetical)
Receipt for fraud prevention services
External provider ABN12345678912
Service deliveredCredit card fraud prevention
Coverage period1 July 2016 – 30 June 2017
Cost$3,000
Receipt for FDR Insurance
External Provider ABN12345678913
Service deliveredFDR Insurance
Coverage period1 July 2016 – 30 June 2017
Cost$2,500
Total other permitted surcharge fees = $5,500
Attributing fraud prevention and FDR Costs
Total value of all card schemestransactions
Total Fraudpermitted
costs
Additional costs as a
percentage
Total FDRpermitted
costs
100
Total value of all card scheme transactions
100
Additional costs as a
percentage
Your permitted surcharge rate
MSFFraud
prevention
FDR insurance
Surcharge rate
1.1 0.3 0.25 1.65%
MasterCard Credit Example
Simple Formula
Applying your surcharge rates
Debit surcharge
Credit surcharge
Debit surcharge
Credit surcharge
Companion credit
surcharge
Amex Credit
surcharge
Always express your surcharge rate as a percentage.
Penalties
ASX listed company – $108,000 per contravention
Non listed company – $10,800 per contravention
Other business type - $720 per contravention
1 September 2016
1 June 2017 1 July 20181 July 20171 September
2017
Large business must comply with the new regulations
Acquirer will provide an Annual Statement
Allowable items to be calculated and surcharge rates set.
New interchange rates will come into affect
All businesses must comply with new regulations on permitted surcharge
Ensure rate of surcharge complies with the new standards.
Yearly review of your surcharge rate
When will these changes be implemented?
Your business will be classified as a small businessif it meets two or more of the following criteria
• Your businesses’ revenue for the financial year is less than $25 million.
– Revenue is defined as any money that your business derived for the provision of its services i.e commissions and service fees.
• Your businesses’ gross assets at the end of the financial year is less than $12.5 million.
• Your businesses’ has fewer than 50 employees at the end of the financial year.
Where can I find further information?
AFTA electronic payment support material
RBA website Q&A
ACCC website Q&A
Your bank and acquirer