As the general global banking industry undergoes a period of change, it seems certain that some of the measures introduced in former eras may well come to an end sooner rather than later. With the growing prevalence of so-called neobanks, and plenty of challenger startups to help individuals get around common problems such as credit card fees, there appears to be a need to react to it.
How credit card companies themselves work often feels shrouded in mystery for those outside of the finance bubble, and when it breaks it can leave operating businesses open to comebacks. This was evident with the class action lawsuit brought against Visa and Mastercard in 2018, which cost them a combined $6.2billion as they had to remunerate customers and businesses affected by credit card fees they should not have had to pay.
Australia’s Productivity Commission has now called for these interchange fees to be scrapped by the end of the year, and as large legislative bodies begin to increase the noise around such fees being taken away, the clamor is likely to increase.
The fees were initially brought in as a means to stimulate the use of credit cards when they were still a relatively new financial instrument. However, as technology has evolved and consumer needs have altered, there is no longer scope to feel that the industry can carry on in this manner without change.
Given the current state of the banking industry in terms of the response to the Royal Commission fallout, it is likely that this will be seen as an opportunity to capitalize on the upcoming sea change which will allow other developments to take place.
Quite how credit card companies are likely to position themselves in terms of responses to up and coming challengers to the scene, as the general overview of those offering credit becomes wider, and both households and businesses begin to expect less complex access to credit.
Australia is not expected to be the only country pushing for this and, if more of their Western allies also pitch in and give their backing, such a change could well happen sooner rather than later. However, it is thought to be one of those moves which could instigate a fair few more, as credit card companies who lack a diversified business offering struggle to compete in a tighter market, while those who have alternative strategies to keep up with technological trends may well increase their market share.
The losses to these companies are going to be significant if and when it does go ahead. According to the CEO of one payments consultancy firm in Australia, Grant Halverson of McLean Roche, scrapping interchange fees would cost the companies involved more than $1.4billion, which would cause a huge black hole in some accounts.
Those who are able to alter their business plans to include new applicable fees to suit the changing face of banking may well not lose out too much but, otherwise, plenty of companies could find themselves dropping out of the market completely
The banking industry is partly in flux because of the changing expectations of consumers. With the advent of technology and shareable content, it is much easier to find out how other customers are getting on with other providers. The level of service now thought of as a sort of obligation is increasing year on year, and those who cannot keep up could be left out.