Published in the Australian Financial Review, 20 November 2025. Written with Julian Morris.
The Reserve Bank’s position on payment system fees is a mess.
As Commonwealth Bank chief executive Matt Comyn told parliament this week, the way the RBA regulates payment system fees unbalances the competitive dynamic between banks, credit card networks and the global tech players that now also offer payment services. The domestic banks feel that they’re being penalised while international players are left alone.
But competitive unfairness is the virtually unavoidable result of the RBA’s regulatory philosophy. For over 20 years, the central bank has been trying to micromanage how merchants and banks charge each other and consumers for access to credit and debit card payments. And it has found itself playing a constant game of whack-a-mole with an evolving payment system while trying to clean up the unintended consequences of its own regulatory choices.
The clearest example of the mess created by the RBA’s payment system price controls is its proposed reforms to credit and debit surcharges.
Anthony Albanese has been running a political campaign against excessive card surcharges imposed by merchants. On social media last year he asked why a flat white should cost $5 with cash but $5.10 with a card.
It’s a fair question – but one which should have been directed not at voters but at the RBA, which since 2003 has prohibited the card networks (Visa and MasterCard) from imposing their own ban on card surcharges.
So now the RBA proposes to remove its prohibition on the network-imposed “no-surcharge” rules.
This is good. But it is hard to give the RBA credit for resolving a problem of its own making. The no-surcharge prohibition should go down as a case study of regulatory mismanagement.
The justifications the RBA gave for its prohibition are absurd in retrospect. Twenty years ago the RBA argued that no-surcharge rules “deny merchants the freedom to set their own prices” for card use. It now admits its goal back then was to tilt the competitive balance against cards – which were increasingly popular – and towards cash.
Unfortunately, though, the RBA now wants to double down on another price control: that on card interchange fees. Interchange fees are retained by the cardholder’s bank each time a card transaction is processed. Like the no-surcharge rule, since 2003 the RBA has imposed price controls on these fees.
It has set these controls by benchmarking the actual costs (well, “eligible” costs, with the eligibility of costs determined by the RBA) of interchange, such as funding, settlement, and fraud protection. Now the central bank wants to impose simpler – and much harsher – price caps.
The interchange fee regulation is just as misconceived as its contemporaneous no-surcharge rule. The RBA has itself noted that annual card fees rose and card rewards fell once the rules came in. There is little evidence that merchants passed through any of their savings.
Interchange fees aren’t arbitrary or exploitative. They are the mechanism by which payment networks balance the interests of merchants and consumers.
The keyword there is “balance”. Payment networks are multisided markets that balance the interests of the different “sides” – merchants, consumers, banks – by setting fees to maximise system value. Among other things, interchange fees fund rewards, insurance and other card benefits. All of these are there to incentivise consumers to use their cards.
To be fair, in 2003 the economic study of multisided markets was still maturing. So perhaps the turn-of-the-century RBA can be forgiven for not fully understanding the implications of this complex economic structure.
But ignorance is no longer acceptable. One of the pioneers of multisided market economics, Jean Tirole, has a Nobel Prize. And we can see that the digital economy is all about multisided markets.
The RBA doesn’t acknowledge that the function of payment networks is to maximise the value of the system.
Fees are not a bug, they are a feature. They must be high enough to sustain investment in innovation and consumer benefits, but low enough that merchants continue to accept cards. It is a balancing act, refined through constant competitive pressure and trial and error. Regulators cannot replicate this by decree.
From Diocletian’s edict on maximum prices in the Roman Empire to modern rent controls, the result has always been less investment, lower quality, and unintended harm to the very people regulators purport to help.