Change afoot for credit card interchange: what the new rates mean for small business



Cashflow | Finance | Small Business

By Brad Kean

Australians will feel the impact of the upcoming new credit card interchange regulations — we’re a nation of points junkies with 11 million Qantas Frequent Flyers * alone. But while everyone’s thinking about how the reverberations of these changes affect consumers, it’s easy to forget that new interchange rates raise a number of big questions for business cardholders in particular.

Business-to-business (B2B) payments are becoming one of the fastest growing revenue streams for the likes of American Express, Visa and MasterCard. Yet, relatively few businesses currently use their commercial cards to pay suppliers for a fairly obvious reason: high interchange rates that make purchases prohibitively expensive.

The Reserve Bank of Australia’s (RBA) decision on credit card surcharge rates changes this. According to the RBA, the cap offers relief to the many businesses that bear the brunt of interchange costs, compared to larger merchants who often benefit from low rates on their card transactions already. By capping all interchange rates at 0.8 per cent, it can provide a shot in the arm that will see businesses increasingly take up commercial cards as a payment option for suppliers.

Small business, big impact

The surcharge reductions will affect small businesses (SMBs) in a few key ways. Firstly, SMBs will have to contend with the changes to credit card reward point systems and rebates. It’s likely that small businesses simply won’t be able to cash in on big rewards the way they used to.

Banks will have to look at new ways to cut down on the overheads of managing card payments, and reducing reward systems or raising fees are the most obvious places for them to start. In fact, we’ve already seen card providers begin to decrease point-earning rates and develop more restrictive point caps.

Businesses therefore will need to take their reliance on points, or rebates, into account when considering whether to use their credit card over other financing methods to pay suppliers. For those that can’t live without a rewards scheme, keep in mind that the surcharge changes won’t impact American Express and Diners Club payments. If your business is willing to pay a premium, you can still reap high-end rewards benefits, even when the cap comes into effect.

The RBA’s decision should still greatly increase commercial credit card volumes because the benefits outweigh points considerations. There are a number of ways firms can tap into commercial cards to increase their finance portfolio — credit cards are some of the most powerful, but underutilised, tools available to small businesses. Now is the perfect opportunity to take advantage of them.

Normalised commercial card use opens doors

Once the rate changes come into effect, organisations should look to cards not for rewards, but for the security, efficiency and speed offered by credit card networks. A huge selling point for any business is the working capital benefits of up to 55 payment free days provided by the commercial card issuers. By reducing interchange rates, currently the greatest inhibitor to card acceptance, B2B card use becomes the dark horse of supplier payments.

Furthermore, the same interchange rules will apply across both consumer and commercial cards, meaning businesses won’t need to choose one over the other to circumvent higher fees as has been the case in Europe. This creates a unique opportunity for commercial card usage to normalise across Australian businesses.

The future is fintech

What’s perhaps most interesting about the upcoming changes is that the increase in commercial card use leaves the door wide open for fintech startups to fill in gaps around B2B card usage and payments. For example, there’s plenty of room for improvement in methods and acceptance of credit cards. It’s well-known that B2B payment technology hasn’t evolved at the same pace as consumer payment technology. A rise in B2B card use will mean an increase in demand for solutions that reduce payment friction, creating an environment conducive to fintech innovation.

B2B payments mean advantages for small businesses, including improved working capital and cashflow, greater efficiency, fewer checks and paperwork, and increased visibility. One of the biggest challenges for any SMB is bookkeeping, as witnessed by the growth of and demand for accounting software and solutions. The more digitised processes and payments become, the easier things get for businesses. If interchange caps lead to more commercial card use, then they also lead to advances in payment technology and digitisation for small businesses.

Overall, the RBA’s decision will have a positive impact on Australian SMBs. Now we just have to see what small businesses and fintechs do with this opportunity.

* http://www.qantasnewsroom.com.au/media-releases/qantas-frequent-flyers-to-earn-points-for-walken/


About the author

Brad Kean is the Head of APAC Partnerships at Octet, a supply chain financier. 

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