RDP 2014-14: The Evolution of Payment Costs in Australia Appendix A: Additional Detailed Results

Chris Stewart, Iris Chan, Crystal Ossolinski, David Halperin and Paul Ryan

December 2014 – ISSN 1320-7229 (Print), ISSN 1448-5109 (Online)

This appendix contains a number of tables providing more details on the cost components associated with different payment instruments. Tables A1 to A7 provide additional information on resource costs for account overheads, cash withdrawals, credit cards and debit cards. Table A8 provides additional information on private costs by sector.

Table A1: Overall Costs to Financial Institutions and Merchants
Dollars per average-sized transaction
Payment instrument Financial institutions Merchants Total cost 2006 comparison
Account overheads Direct
Resource costs
Cash 0.03 0.20 0.28 0.51 0.41
eftpos 0.24 0.23 0.22 0.70 1.02
MasterCard & Visa debit cards 0.24 0.51 0.19 0.94 1.36
Credit cards 0.41 0.72 0.22 1.34 1.81
Cheques 0.25 3.26 1.85 5.37 5.79
Direct entry 0.25 0.03 0.13 0.41 0.75
BPAY 0.28 0.41 0.03 0.73 1.01
Private costs
Cash 0.03 0.20 0.29    
eftpos 0.24 0.24 0.24    
MasterCard & Visa debit cards 0.24 0.53 0.32    
Credit cards 0.41 0.82 0.66    
Cheques 0.25 3.26 3.01    
Direct entry 0.25 0.03 0.19    
BPAY 0.28 0.41 0.53    
Memo item: credit cards including rewards and credit function
Resource costs 0.41 1.73 0.22 2.36 2.68
Private costs 0.41 2.95 0.66    

Source: Authors' calculations based on survey data
Table A2: Cost of Cash Withdrawals
Dollars per withdrawal, at average withdrawal value
2006 2013
Total costs na 0.99
Total resource costs na 0.92
ATM withdrawals
Total costs 0.86 0.93
Total resource costs 0.75 0.85
ATM owner/acquirer 0.63 0.77
ATM owner equipment 0.18 0.20
Cash handling and storage 0.14 0.11
ATM owner centre management 0.09 0.11
Site rental – on-site 0.03 0.03
Site rental – off-site 0.10 0.21
Other (incl theft and fraud mitigation and the cost of capital) 0.10 0.11
Card issuer(a) 0.12 0.08
Transfers    
Float (transfer to govt) 0.11 0.08
Fraud and theft – net losses(b) na 0.00
Interchange fees (issuers to acquirers) 0.49 0.04
Memo item: average withdrawal value(c) 170 184
Branch cash transactions
Total costs 3.70 6.41
Total resource costs 3.40 6.02
Transaction processing 1.77 2.93
Rent 0.57 1.12
Technology 0.35 0.59
Wholesale cash handling 0.39 0.79
Fraud – monitoring, mitigation and investigation 0.12 0.17
Other branch costs 0.20 0.41
Transfers    
Float (transfer to govt) 0.30 0.35
Fraud and theft – net losses(b) na 0.03
Memo item: average withdrawal value(c) 1,578 2,412
Debit cash-outs
Total costs na 0.45
Total resource costs na 0.44
Card issuer 0.11 0.05
Card acquirer 0.11 0.10
Merchants na 0.30
Of which: tender time na 0.19
Transfers    
Issuers fraud and theft – net losses(b) na 0.01
Issuers – interchange fees (to acquirers) 0.16 0.22
Acquirers – fee rebates (to merchants) na −0.14
Memo item: average withdrawal value(c) 76 89

Notes: (a) Estimates not strictly comparable between the 2007 and 2014 studies given ATM-related issuing costs were separately identified in 2014 but otherwise incorporated into eftpos costs in 2007
(b) The 2007 study did not separately identify the net losses from fraud and the costs of fraud monitoring, mitigation and investigation
(c) Consumer withdrawals only

Source: Authors' calculations based on survey data
Table A3: Financial Institutions' Credit Card Costs
Dollars per transaction, at average transaction value
2006 2013
Weighted average Weighted average MasterCard & Visa
Total costs 2.40 2.95 2.68
Total resource costs 1.46 1.73 1.76
Payment function 0.59 0.72 0.72
Issuer 0.40 0.43 0.43
  Authorisation and transaction
  processing 		0.08 0.06 0.07
  Scheme fees 0.11 0.21 0.20
  Fraud prevention(a) 0.11 0.03 0.03
  Other issuer costs 0.10 0.14 0.14
Acquirer 0.19 0.28(c) 0.28
  Scheme fees 0.02 0.12(c) 0.12
  Other acquirer costs 0.17 0.16(c) 0.16
Credit and rewards functions 0.87 1.01 1.04
Credit collections and write-offs 0.64 0.78 0.83
Cost of capital (credit risks) 0.19 0.22 0.19
Cardholder rewards programs
(operating costs)		 0.04 0.01 0.01
Transfers 0.94 1.22 0.93
Issuer 0.92 1.21 0.93
Chargebacks and issuer fraud losses 0.01 0.09 0.04
Cardholder rewards 0.62 0.74 0.56
Cost of funds 0.30 0.38 0.31
Acquirer 0.02 0.01(c) 0.01
Memo items:
Interchange fees 0.69 0.86 0.86
Average transaction value(b) 132 139 131

Notes: (a) The 2007 study did not separately identify the net losses from fraud and the costs of fraud monitoring, mitigation and investigation
(b) Of underlying transactions
(c) Data only include costs for MasterCard and Visa; for confidentiality reasons, American Express acquirer data have been suppressed

Source: Authors' calculations based on survey data
Table A4: Merchants' Credit Card Costs
Dollars per transaction, at average transaction value
  2006 2013
Weighted average Weighted average MasterCard & Visa American Express
Total costs 1.00 0.66 0.56 1.06
Total resource costs 0.41 0.22 0.22 0.22
Card present
Total costs 0.94 0.52 0.45 0.82
Total resource costs 0.42 0.21 0.21 0.21
Tender time 0.31 0.17 0.17 0.18
Contactless na 0.11 0.11 na
Contact-only 0.31 0.20 0.22 0.18
Other point of sale 0.09 0.03 0.03 0.02
Other (including back-office processing) 0.02 0.01 0.01 0.01
Transfers 0.53 0.32 0.24 0.62
Fees to acquirers 0.52 0.32 0.24 0.61
Other transfers 0.01 0.00 0.00 0.00
Memo item: average transaction value(a) 68 61 61 62
Card not present
Total costs 1.76 2.07 1.72 3.93
Total resource costs 0.23 0.38 0.38 0.39
Transfers        
Fees to acquirers 1.53 1.63 1.27 3.53
Other transfers 0.00 0.06 0.07 0.01
Memo item: average transaction value(a) 146 240 242 228

Note: (a) Differences in average value of underlying transaction between merchants and financial institutions are due to narrower merchant sample coverage

Source: Authors' calculations based on survey data
Table A5: Debit Card Costs
Dollars per transaction, at average transaction value
2006 2013
eftpos eftpos MasterCard & Visa debit Debit
Financial institutions
Total costs 0.27 0.24 0.53 0.31
Resource costs 0.22 0.23 0.51 0.29
Issuer 0.11 0.07 0.31 0.13
Transaction processing 0.05 0.01 0.04 0.02
Scheme fees na 0.01 0.12 0.04
Other (including theft and the cost of capital) 0.05 0.05 0.15 0.07
Acquirer 0.11 0.16 0.20 0.17
Scheme fees na 0.01 0.06 0.03
Other acquirer costs 0.11 0.15 0.13 0.14
Transfers
Issuer na 0.01 0.02 0.01
Acquirer 0.05 0.00 0.01 0.00
Memo item: interchange fees
Issuer to acquirer 0.18 na na na
Acquirer to issuer na 0.02 0.10 0.04
Memo item: average transaction value(a) 59 51 67 55
Merchants
Total costs 0.34 0.24 0.32 0.27
Total resource costs 0.32 0.22 0.19 0.19
Card present
Total costs 0.34 0.24 0.25 0.24
Resource costs 0.32 0.22 0.17 0.20
Tender time 0.24 0.19 0.14 0.17
  Contactless na na 0.12 0.12
  Contact-only 0.24 0.19 0.22 0.19
Other point of sale 0.07 0.03 0.02 0.03
Other (including back-office processing) 0.01 0.01 0.01 0.01
Transfers 0.01 0.02 0.08 0.04
Fees to acquirers 0.01 0.02 0.08 0.04
Other transfers 0.01 0.00 0.00 0.00
Memo item: average transaction value(a) 73 57 40 54
Card not present
Total costs na na 1.28 1.28
Resource costs na na 0.45 0.45
Transfers
Fees to acquirers na na 0.75 0.75
Other transfers na na 0.08 0.08
Memo item: average transaction value(a) na na 193 193

Note: (a) Differences in average value of underlying transaction between merchant and financial institutions are due to narrower merchant sample coverage

Source: Authors' calculations based on survey data
Table A6: Cheques and BPAY Costs
Dollars per transaction, at average transaction value
Cheques BPAY
2006 2013 2006 2013
Financial institutions
Total costs 4.22 3.26   0.51 0.41
Total resource costs 4.22 3.26   0.51 0.41
Overheads 1.13 1.03   0.19 0.15
Processing 0.40 0.64   0.13 0.06
Exceptions 0.22 0.06   0.03 0.00
Receipt of deposits 2.27 1.14   na na
Scheme fees na na   0.10 0.13
Other (including the cost of capital) 0.20 0.39   0.06 0.07
Memo items:
Interchange fees na na   0.40 0.42
Internet and phone banking costs na na   0.17 0.14
Average transaction value(a) 3,159 5,946   597 701
Merchants
Total costs 1.20 3.01   0.56 0.53
Total resource costs 1.09 1.85   0.02 0.03
Point-of-sale payments
Total costs 3.37 9.36   na na
Total resource costs 2.96 3.76   na na
Tender time 1.14 0.80   na na
Other point of sale 1.61 1.14   na na
Other (including back-office processing) 0.21 1.82   na na
Transfers
Losses 0.25 0.00   na na
Fees paid to financial institutions 0.16 5.60   na na
Memo item: average transaction value(a) 357 239   na na
Remote payments
Total costs 0.51 1.58   0.56 0.53
Total resource costs 0.50 1.43   0.02 0.03
Back-office processing 0.48 1.42   0.02 0.03
Exceptions processing 0.01 0.00   0.00 0.00
Transfers – Fees to financial institutions 0.01 0.15   0.54 0.50
Memo item: average transaction value(a) 1,098 591   136 176

Note: (a) Differences in average value of underlying transaction between merchants and financial institutions are due to narrower merchant sample coverage

Source: Authors' calculations based on survey data
Table A7: Direct Entry Costs
Dollars per transaction, at average transaction value
Direct debit Direct credit
2006 2013 2006 2013
Financial institutions
Total costs 0.10 0.03 0.08 0.02
Total resource costs 0.10 0.03 0.08 0.02
Overheads, set-up and servicing 0.05 0.01 0.04 0.01
Processing 0.03 0.01 0.03 0.01
Exceptions and fraud 0.01 0.00 0.00 0.00
Other (including the cost of capital) 0.01 0.01 0.01 0.00
Memo item: average transaction value(a) 4,008 7,383 4,781 5,258
Merchants
Total costs 0.24 0.19 na na
Total resource costs 0.19 0.13 na na
Overheads 0.04 0.00 na na
Back-office processing 0.14 0.12 na na
Exceptions 0.01 0.01 na na
Transfers
Fees paid to financial institutions 0.05 0.06 na na
Memo item: average transaction value(a) 106 129 na na

Note: (a) Differences in average value of underlying transaction between merchants and financial institutions are due to narrower merchant sample coverage

Source: Authors' calculations based on survey data
Table A8: Private Net Costs by Sector
Dollars per average-sized transaction
Financial institutions Merchants Consumers
All Issuers Acquirers
MasterCard & Visa credit cards(a)
Resource costs incurred 1.76 1.47 0.28 0.22 na
Net transfer paid to: −1.22 −0.93 −0.29 1.03 0.19
Issuers   na 0.86   0.07
Acquirers   −0.86 na 1.15  
Merchants     −1.15 na 0.12
Consumers   −0.07   −0.12 na
Total private net cost 0.54 0.55 −0.01 1.25 na
MasterCard & Visa debit cards
Resource costs incurred 0.51 0.31 0.20 0.17 na
Net transfer paid to: −0.67 −0.28 −0.39 0.46 0.21
Issuers   na 0.10   0.18
Acquirers   −0.10 na 0.49  
Merchants     −0.49 na 0.03
Consumers   −0.18   −0.03 na
Total private net cost −0.16 0.03 −0.19 0.63 na
eftpos
Resource costs incurred 0.23 0.07 0.16 0.22 na
Net transfer paid to: −0.34 −0.20 −0.15 0.14 0.21
Issuers   na 0.02   0.18
Acquirers   −0.02 na 0.16  
Merchants     −0.16 na 0.03
Consumers   −0.18   −0.03 na
Total private net cost −0.12 −0.13 0.01 0.36 na
Cash
Resource costs incurred 0.19 0.10 0.09 0.27 na
Net transfer paid to: −0.04 0.07 −0.13 −0.02 0.13
Issuers   na −0.10    
Acquirers/ATM owners   0.10 na −0.02 0.05
Merchants     0.02 na  
Consumers   −0.03 −0.05   na
Central bank and mint 0.02     0.00 0.05
Total private net cost 0.15 0.17 −0.04 0.25 na

Note: (a) Does not include interest payments from consumers to financial institutions

Sources: Authors' calculations based on: survey data; Craig (2014); Ossolinski et al (2014); Payments Consulting Network (2014); RBA; RFi Consulting (2014)