Slugging consumers does the Reserve no credit

The Reserve Bank proposal that credit card interchange fees are significantly cut could disadvantage consumers and distort competition.

The interchange fee is paid between banks whenever a merchant accepts a credit card payment. The cost is borne by both parties, but when the fee falls, cardholders pay more and merchants less. The Reserve's proposals would tip $500 million of costs onto the estimated 10 million cardholders in Australia.

The proposed cut to about 0.3 per cent in under a year could cause smaller banks, credit unions and building societies to stop offering credit cards. The winners would be the large retailers who can retain the reduced fee and not pass the savings on to consumers.

Read more about proposed reforms to the credit card system by the Reserve Bank.