Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947
Sydney NSW 2001
1 February 2016
Re: Review of Card Payments Regulation - Consultation Paper
Citi appreciates the opportunity to provide feedback on the reform options and draft standards discussed
in the Review of Card Payments Regulation - Consultation Paper (the Paper) published by the Reserve
Bank of Australia in December 2015.
Citi offers both Consumer and Commercial Cards in Australia. This submission represents views from the
Treasury and Trade Solutions (TTS) business of Citi and focuses on Interchange Fees related to
Commercial Cards.
Citi’s Key Recommendation:
Interchange fee CAP specifically for Commercial Cards be setup at 1,2000 per cent
Or
Commercial Cards be excluded from the interchange fee CAP
Our recommendation is based on the following consideration:
1. Revenue model for commercial cards is heavily dependent on interchange unlike consumer cards
2. Lower interchange will impact healthy competition & innovation
3. Rebates are paid to a very small percentage of Corporate clients.
1. Revenue model of Commercial Cards is heavily dependent on Interchange
Commercial Cards Cost Structure:
Commercial cards provide a lot more value to customers when compared to Consumer Cards and our
costs are much higher than Consumer Cards business. Corporations and Public Sector entities currently
enjoy functionality- and service-rich Commercial card product offerings that require significant investments
from issuers in the form of:
1. Reporting tools to track expenses, ensure travel policy compliance, and reduce overall travel
expenses
2. Technology integration between Commercial cards systems and Corporate or Public Sector ERP
and EMS systems (e.g. Oracle, SAP, Concur, Fraedom)
3. Ongoing customer relationship management to ensure optimal performance of the Commercial
card program
Commercial Cards Revenue Model:
On the other hand, we do not earn revenue from interests of outstanding balance. Our key revenue driver
is Interchange, and unlike our Consumer counterparts we do not charge clients fees such as annual cards
fees, statement fees, card replacement fees etc.
2. Lower interchange will impact healthy competition & innovation
If the 0.8000 per cent cap on credit card transactions were applied to Corporate Cards, it would be
uneconomic (loss-making) for issuers to offer them to their customers. This will have the following impacts
on the market:
i.
Some key current Commercial card Issuers would exit the business and would not be
replaced by new entrants since the business would be loss-making. This would decrease
competition contradicting one of the stated aims of the regulation which is to enhance the
competition and efficiency of the payments system.
ii.
Create an unlevelled playing field as three-party schemes, such as for example American
Express, would be handed the majority of commercial card programs, increasing their already
dominant market share position because commercial cards issued by the three-party schemes
are currently excluded from the maximum interchange caps.
iii.
Impairment to innovation due to lack of funding as a result of significant reduction of revenue
income from interchange fees, which is the main revenue stream for commercial cards
3. Rebates are paid to a very small percentage of Corporate clients.
We also note the consultation paper note that rebates are very common among commercial cards sector.
While we acknowledge that rebates do exist for selective programs, it represents a small percentage of
the commercial cards programs we support.
Furthermore, as per the latest RBA data release (12 months to November 2015), the commercial credit
spend represents 7.2% of the total cards spend in Australia, out of which commercial cards spend offered
to large corporate represents less than 3%. Therefore to apply a separate CAP of 1.2000 per cent for
commercial cards or to exclude commercial cards entirely from the CAP and lower the weighted average
from 50bps to a slightly lower number, e.g. 45bps, will not have material impact to the overall objectives
RBA would like to achieve through this review.
In summary, Citi recommend a separate higher CAP of 1.2000 per cent for commercial cards or
exclusion of commercial cards from the CAP combined with a slightly lower weighted average due
to the above considerations.
We look forward to the opportunity to discuss our submission with RBA.
Yours sincerely,
Susan Yang
Head of Cards and Trade Australia and New Zealand
Treasury & Trade Solutions
Citi