A new report by CMSPI, an American payment consultancy, produced in collaboration with Amazon, explores payment trends and regulations in Asia-Pacific (APAC), focusing on the impact of rising card fees on merchants and the regulatory responses to these challenges.
The report highlights the role of regulatory , such as interchange fee caps and the promotion of pay-by-bank alternatives, in reducing merchant costs and interventions enhancing competition within the payment market. It also explores the increasing adoption of real-time payments, which many countries are embracing as a more efficient and cost-effective alternative to traditional card payments.
Covering four of the largest retail payment markets in APAC, namely Japan, India, Singapore, and Australia, the report examines the key trends around cost, consumer behavior, and regulation in each of these jurisdictions. It notes that rising card fees costs in the region have significantly impacted merchants’ acceptance costs, prompting regulatory action in various markets.
In response to these challenges, some countries have implemented measures to curb rising fees and create a more efficient payment landscape. These measures include capping interchange fees and thus curtailing the effects of reverse competition, as well as mandating competition on card payments through the use of co-badging. Co-badging refers to a single payment card that has at least two or more payment card networks enabled on it. This allows the card to be used for transactions across multiple payment networks, increasing accessibility.
Other regulatory efforts have included mandating pricing disclosure of interchange fees and ensuring merchants’ rights to surcharging. Surcharging refers to the practice where merchants add an additional fee to a transaction when a customer chooses to pay with a specific payment method, typically a credit card. This surcharge is intended to recoup the costs associated with accepting card payments.
Payment regulations and merchant fees
Using publicly available data, the study examines the approach by each country to intervene on rising card costs and analyzes how these initiatives have impacted the costs of card acceptance. It found that in most cases, regulatory interventions have had a positive impact on merchant acceptance and costs.
Australia, for example, introduced caps on interchange fees in 2003 for both credit and debit transactions. The move led to a notable decrease in the cost of acceptance for merchants. Between Q1 2003 and Q1 2004, the average Visa and Mastercard cost of acceptance fell from 1.45% to 1.08%.
Across the four APAC countries studied, only Australia currently has active interchange caps for credit and debit transactions. India has introduced interchange caps for debit and transactions on the United Payments Interface (UPI) network, but credit transactions remain uncapped.
Japan had previously introduced an interchange cap of 3.25% on credit transactions, but due to significant pushback from the credit card industry, lawmakers reversed their stance, allowing card companies the discretion to decide whether or not to uphold the cap.
Finally, while Singapore does not have formal interchange caps, there have been instances of surcharging in certain sectors, suggesting some level of regulatory activity regarding card payments.
Merchants have long criticized Visa and Mastercard for charging inflated interchange fees or so-called “swipe fees” on credit and debit cards transactions. Swipe fees typically include small fixed fees in addition to a percentage of total sale amounts, and average about 1.5% to 3.5% per transaction, according to Bankrate.com. These fees totaled US$172 billion in 2023, and have more than doubled in the last decade, according to the Merchants Payments Coalition, which represents retailers, grocers, convenience stores and gas stations.
Real-time payments as an alternative
To improve the payment landscape and promote competition, many governments are investing in pay-by-bank infrastructure, allowing both merchants and consumers to benefit from more efficient and cost-effective payment solutions.
Pay-by-bank is a payment method that lets customers pay for goods and services directly from their bank accounts, without the need for a credit or debit bank. These solutions offer an attractive alternative for digital payments, providing efficiencies above traditional card rail offerings, such as faster settlement and greater interoperability, as well as lower costs. Digital wallets are also able to build on and integrate with pay-by-bank rails, fostering innovation and further expanding alternatives to card-based transactions.
In some countries, usage of pay-by-bank solutions has grown dramatically, surpassing the share of cards for retail payments in-store and online.
In India, UPI, the country’s pay-by-bank infrastructure and instant payment system, has become the preferred digital payment method, accounting for 53.4% of transactions in 2023 and constituting 84% of all electronic transactions, according to the 2024 Prime Time for Real-Time report by ACI Worldwide.
Last year, India was the biggest instant payment player globally, processing almost 130 billion real-time payments in 2023, and accounting for 49% of total global real-time transactions. The figure surpassed the combined real-time payments of the next nine countries in the global market.
In Singapore, usage of real-time payments stands at a lower level, accounting for 11.8% of all transactions and 29.5% of total payment value in 2023. By 2028, real-time payment spending is expected to overtake both non-real-time electronic payments and paper-based payments.
Global real-time payments reached a new high last year, totaling 266.2 billion transactions in 2023, representing a year-over-year growth of 42.2%.
Featured image credit: edited from freepik
