Woolworths clashes with banks over credit card reform

The Australian newspaper today (July 3 2008) has reported that Woolworths has clashed with credit cards and banks following a call by the credit card industry to move to self regulation.

The Reserve Bank is currently reviewing payment system reforms in Australia and both the card issuers and retailers are keen to have their two cents worth and have their views heard by the RBA during the review submission process.

In an eight page submission to the RBA, the retail giant says ""Woolworths fears the benefits realised to date will be eroded if the RBA steps back and allows industry participants -- mainly financial institutions and card schemes -- to govern the market,".

The savings to date refer to earlier reforms since 2003 by the RBA to slash interchange fees on Visa and Mastercard credit card transactions. Interchange fees on these cards has been lowered from 0.9% to 0.5%.  The credit card industry says this reduction has lowered interchange fees by $1.1 billion since the reforms have come in and has returned fire at retailers such as Woolworths saying major retailers have failed to pass these savings on to consumers and have simply absorbed them as higher retail profits.

Commonwealth credit cards is one of the banks publicly backing the self regulation model and believes rather than eroding benefits it will in fact create a more competitive and transparent market, which will result in a better deal for credit card users in the long run.  

Time will tell what happens with this battle and we will keep updating the story on the site as the RBA reforms progress.