Understanding Interchange

Business benefits in many ways as a result of interchange including reducing the significant costs associated with counting, safeguarding and transporting cash and limiting the losses that occur when cash received is lost or stolen. Merchants who accept cards also receive the most important commercial benefit:  they increase sales. Studies show that consumers spend more when they use cards and merchants make more money when they accept cards. This is not surprising since shoppers using cards are not limited to cash on hand but can access their funds on deposit or credit available from their banks when they make their purchasing decisions.  Interchange provides convenience, security and fraud prevention and supports the use of credit cards, which increases sales and guarantees payment for those businesses who accept Mastercard cards. For example, payment is guaranteed to the business when a good is sold but the cardholder does not pay their credit card bill.

Businesses benefit from guaranteed payment, increased sales and lower processing costs than those associated with paper payments such as cash and cheques. Electronic payments also provide them with the ability to attract and retain customers with a fast and efficient buying experience.                                

• Credit and debit card transactions are 4.5 and 2.5 times larger than cash purchases respectively
• Every year, banks write off 2-4% of credit card balances as losses – a cost that would sit with retailers without interchange
• When compared to acceptance of cash, the additional value provided  to merchants by electronic payments  is about 3 to 4 times the total cost of acceptance

Retailers, in particular, have seen the value of interchange through increased speed at the point of sale, leveraging ‘tap and go’ or contactless transactions, reducing fraud, the cost of handling cash, and reducing the amount of cash held in stores (making stores safer for team members).

Electronic payments facilitate economic activity and provide the necessary infrastructure for citizens and businesses to interact in a financial ecosystem. Government and the public sector are major beneficiaries of interchange as they utilise many different payment options including commercial cards. For example, electronic payments have revolutionised welfare payments systems

Electronic payments help safeguard against waste, fraud and abuse

• Using electronic payments to deliver social benefits is more efficient and secure
• Black and grey economies fueled by untraceable and untaxable cash payments flourish where electronic payments use is low

Interchange delivers major benefits to consumers. Not only does it allow businesses to accept their cards, it contributes to the cost of fraud prevention and pays for the interest free days on credit cards. For example, in the event of a stolen card, Mastercard cardholders are protected from fraud or unauthorised transactions under Mastercard’s Zero Liability Policy (For more information click here) Convenience and safety, increased opportunity for financial inclusion, access to rewards and incentives and the choice of thousands of innovative credit, debit and prepaid payment products are among the many benefits consumers derive from electronic payments. 

• Payments allow consumers to access money whenever and wherever they want
• Interchange makes it possible for issuers to provide consumers with interest-free periods on credit cards
• Electronic payments provide consumers with a more secure and efficient way to pay - whether in-person, online or in-app

Mastercard does not earn revenue from interchange.

Mastercard sets interchange rates within limits determined by the Reserve Bank of Australia and based on the value delivered by the issuing bank as well as the benefits of accepting electronic payments. Setting interchange at the right level is important because if interchange rates are set too high, merchants may choose not to accept cards; and, if interchange is set too low, issuing banks have no incentive to cover the risks of issuing payment cards.

Setting interchange rates at the appropriate level also helps ensure that both issuers and acquirers deliver services that optimise the effectiveness of the payments system and spur development of innovative payment solutions. 

Flexible interchange rates make it possible for electronic payments to deliver maximium value at the lowest cost for both merchants and consumers. Interchange also promotes credit availability for small businesses and is a key driver for financial inclusion when set at the optimal level.

Effective on 1 July 2023, MAPPL and Mastercard Asia/Pacific (Australia) Pty Ltd (MAPA) (together Mastercard) provided a voluntary undertaking in favour of the RBA in relation to least cost routing of debit transactions (the Undertaking).  A copy of the Undertaking is available on the RBA’s website at https://www.rba.gov.au/payments-and-infrastructure/payments-system-regulation/undertakings/pdf/2023-05-26-mastercard-rba-undertaking-no-1-of-2023.pdf and further detail can be found here.