Australian Banking Association chief executive Simon Birmingham last week said the plan to remove surcharging, while also lowering interchange rates, would force banks to spend less on guarding their customers from fraud.

“One of our key concerns with the Reserve Bank’s proposals is that it will undermine the capacity to keep safe and secure the very thing that everyday Australians rely upon,” he told the Australian Financial Review’s Cyber Summit last Tuesday.

RBA Governor Bullock said she was “somewhat surprised” to hear those comments when she was asked about them by federal parliament’s economics committee today.

She also said banks are highly unlikely to follow through on the threat.

“I think it’s extremely unlikely that they’re going to shoot themselves in the foot by removing fraud protections or anything else like that,” Bullock said.

“I can’t understand why they would even suggest why they would do that.”

Under the RBA’s draft proposal to modernise Australia’s card payments system, all surcharges on debit and credit cards would be banned, saving consumers around $1.2 billion a year.

In order to shield businesses that rely on those surcharges from the ill effects, the RBA is also moving to reduce the cap on interchange fees, which are effectively paid by merchants to banks whenever a customer buys something from them using a card issued by that bank.

The RBA said that change would save businesses $1.2 billion a year, and that 90 per cent of Australian businesses – most of them small organisations – would be better off under the combined changes.

However, lower interchange rates would provide a revenue hit to banks.

The ABA and many major banks have spoken out in favour of the ban on surcharging, but have been campaigning to have the proposed interchange reduction scrapped.

“This is what the (fraud) argument is about, it’s about interchange,” Bullock said.

“It’s about how much money issuers get when you go and use particularly your credit card.”

“That’s what this argument is about.”

She also reminded banks that they have an obligation to protect customers from fraud.

“To me, these seem like empty threats. Would that approach (of reducing investment in scam protection) be consistent with your expectations of them?” Labor MP Jerome Laxale asked.

“It’s not… they are obviously looking for ways to push back on the reduction in interchange, because that is revenue.”

“They do still make money out of this,” Bullock said.

“So I think this idea that somehow they’re going to be losing money on this, I really don’t understand that argument at all.

“They provide these services, these cards, and they make their money back through a variety of ways, and curtailing fraud protection to try and save money ultimately won’t be good for them and it won’t be good for the payments system.

“So I don’t think that it’s something that, realistically, we will see.”