Understanding the recent changes to electronic payments

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1 Understanding the recent changes to electronic payments Tuesday 27 July, 11:00am (AEST) Guest Speaker Dean Long AFTA s National Manager Strategy and Policy Dean.Long@afta.com.au or

2 House Keeping; Session will be recorded Presentation will be available at Audience will be on mute Q & A can be submitted throughout the presentation but will be answered at the end of the presentation

3 What s next? Introduction Key terms Why have changes been made? Merchant Service Fees Surcharging When will I be effected?

4 Questions?

5 About Dean After 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 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.

6 So what is an electronic payment?

7 Electronic Cash payment = 89% = 11% 41% = direct deposit / debit 38% = MasterCard / Visa 10% = Amex

8 Acquirer Card schemes Interchange fees Merchant service fees Forward Delivery Risk

9 Acquirer Provide you with your merchant facilities

10 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

11 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

12 Source: Chargebacks911.com Interchange fees in practice

13 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

14 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.

15 FDR - For Australian travel agencies Chargeback risk to Australian travel agents; 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.

16 Why has it changed Financial System Inquiry recommended changes to the electronic payment system in Australia of the 6500 submissions complained about surcharging. The RBA had developed the new standards following 18 months of consultation.

17 Changes to Interchange fees - credit OLD Different size merchants had different rates Average every 3 years must be 0.5% NEW Credit card interchange Now capped at 0.8% Average every 3 months must be 0.5%

18 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 Customers who use cards for reward points will most likely see a reduction in the number of points they can earn.

19 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.

20 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

21 Annual Statement MSF from your acquirer Visa credit and debit Companion Amex MasterCard credit and debit Merchant Fees Terminal rental International fees Gateway fees

22 Fraud Prevention Some online businesses have substantial risk of fraud. Engage independent companies to minimise this risk

23 The cost of insurance for (FDR) - no fault third party chargeback Agent becomes a creditor to the insolvent sightseeing tour, even though they have fulfilled their service to the customer. Australian consumer invokes a chargeback because the sightseeing tour did not deliver on the contracted service due to insolvency Consumer pays using a credit card and the travel agent completes four different transactions to suppliers

24 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.

25 Annual Statement Acquirer (financial institution) Card Scheme Card Type Number of transactions MSF as a percentage MasterCard Credit MasterCard Debit Visa Credit Visa Debit Amex Companion Credit 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 Black Total 65 n/a

26 External Providers Fraud prevention and FDR insurance (hypothetical) Receipt for fraud prevention services Receipt for FDR Insurance External provider ABN Service delivered Credit card fraud prevention Coverage period 1 July June 2017 Cost $3,000 External Provider ABN Service delivered FDR Insurance Coverage period 1 July June 2017 Cost $2,500 Total other permitted surcharge fees = $5,500

27 Attributing fraud prevention and FDR Costs Total Fraud permitted costs Total value of all card schemes transactions 100 Additional costs as a percentage Total FDR permitted costs Total value of all card scheme transactions 100 Additional costs as a percentage

28 Attributing fraud prevention and FDR Costs $3,000 $1,000, % $2,500 $1,000, %

29 Simple Formula Your permitted surcharge rate MSF Fraud prevention FDR insurance Surcharge rate MasterCard Credit Example %

30 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.

31 Penalties ASX listed company $108,000 per contravention Non listed company $10,800 per contravention Other business type - $720 per contravention

32 When will these changes be implemented? 1 September September 1 June July July Acquirer will provide an Annual Statement Allowable items to be calculated and surcharge rates set. All businesses must comply with new regulations on permitted surcharge Ensure rate of surcharge complies with the new standards. Large business must comply with the new regulations New interchange rates will come into affect Yearly review of your surcharge rate

33 Your business will be classified as a small business if 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.

34 Where can I find further information? AFTA electronic payment support material RBA website Q&A ACCC website Q&A Your bank and acquirer

35 Questions

36 Thank you

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