Australia’s Reserve Bank has ruled on the future of surcharges, deciding to end the practise on card payments from 1 October, in what is described as a “political fix” for the problems facing businesses.
For years consumers opting to use their own money, paying with cash or debit cards, have typically paid the same fees as people using credit cards, despite the surcharge system being designed to deter spending credit and the real cost of processing credit transactions often three to five times more than a debit transaction.
This is to the benefit of credit users, who may also be receiving the likes of interest-free payment periods and frequent flyer points.
Most small businesses, such as pubs and restaurants, charge the same surcharge for both types as they are encouraged by payment service providers to use what are known as ‘blended’ rates, which combine the individual Interchange, Scheme and Acquirer Margin fees.
In February the Federal parliamentary inquiry into digital payments heard submissions from digital payment providers, including Visa, Mastercard and the big four banks, and about the rebates (“kickbacks”) paid to large businesses at the expense of small businesses, such as pubs.
This prompted an RBA meeting in March to finalise a position on merchant card costs, weighing its preference for a ban on both debit and credit card surcharges against removing only those on debit cards, in line with the Prime Minister’s statement in October 2024 that government was “prepared to ban debit card surcharges” and implement safeguards “to ensure both small businesses and consumers can benefit from lower costs”.
The Treasurer, Hon Jim Chalmers MP, added that the goal was about “getting a better deal for consumers”.
The RBA had to consider what the cheapest and fairest might be, given the justifiable argument that every transaction should be processed through the cheapest route, and that removing only debit surcharges would have the lowest impact on prices.
Payment providers pushed back, suggesting businesses and consumers can rely on competition to drive down prices.
This week, following extensive consultation with stakeholders, the RBA published its results paper, stipulating surcharges on debit, pre-paid, and credit cards will all end on EFTPOS, Mastercard, and Visa networks.
Its reasoning stems from the enforcement challenges in the current framework, with businesses surcharging all cards at the same rate, and the evolution of consumers using less cash.
“The surcharging framework, introduced more than two decades ago, is no longer achieving its intended purpose of steering consumers towards making more efficient payment choices,” said the RBA’s statement.
The paper reported that removing surcharges would make card payments simpler and more transparent, serving to increase competition amongst service providers, and would address the increasing consumer preference for costs to be incorporated into advertised prices.
The RBA is also lowering the caps on Interchange fees, which it says will increase transparency in what is charged by providers and lower the cost of accepting payment from domestic or overseas cards.
It says “small businesses should benefit” from this through the enhanced competition and the ability for operators to shop around for a better deal.
However, the pending new RBA website, the best tool for operators to compare, appears to be delayed until the end of October – after the new rules come in.
The RBA also claims the new policy will deliver $900 million in savings to consumers, but has confirmed the total cost of a beer or coffee won’t go down as a result of its ruling, as businesses are forced to absorb the fees or put up menu prices.
The Australian Hotels Association points to the example of Canada, when Interchange rates were lowered and terminal providers responded by pocketing the savings themselves.
The AHA’s position is that the outcome lets down consumers and businesses “in the middle of a cost-of-living crisis” in favour of the banks and payments companies.
And that from 1 October the problem will not be obvious, allowing government to forget about it.
“It’s a political fix to a political problem,” states AHA CEO Stephen Ferguson.
“The ship has sailed on surcharging. It’s gone.
“Our greatest concern is there is no compulsion for providers to pass benefits and cost savings back to hotels.”
The Association’s stance going into the debate was in favour of the removal of surcharges only on debit cards, based in the added expense of processing credit transactions, but the outcome means people using their own money will continue to subsidise those using credit.
Ferguson says it would be a waste of time trying to get the decision changed, and the AHA is now focusing on probing the question of whether the RBA has actually delivered the safeguards promised by the PM and Treasurer, which it feels “they have not”, and advocates for an improvement for business.
“The RBA has attempted to address Interchange fees, but not gone far enough in ensuring the cost savings that will come from that not passed back to pubs.”
Of comparable concern is the matter of the Scheme and Acquirer fees charged by merchants and terminal providers, which remain uncapped and unregulated, and are “growing rapidly”.
“We’re going to keep encouraging government and the RBA to take action in those areas,” adds Ferguson.
All hoteliers are encouraged to assess the terms of their current terminal provider and review their standing ahead of the 1 October start date.
