On the heels of a decisive election win, the Federal Government looks to continue its mandate to address the cost of living through the banning of debit card surcharges, from January.
Under the current system businesses can pass on payment fees to customers, although no more than they pay to the provider.
The law came about in the 90s, intended to deter people from high-interest credit cards. What is now outdated legislation does not allow for modern, cheaper options such as debit card and phone payments.
Consequently, most consumers pay what is known as a ‘blended’ rate, after the retailer pays the bank a flat fee.
However, the real problem arises from turnover; the rates are not the same for everyone, and smaller venues pay more. A typical pub is hit with around $1 per $100 in fees, while major retailers, such as supermarkets, pay only 1c per $100.
There is also anecdotal evidence that some payment providers charge higher fees to benefit the business, one example being in exchange for Qantas points.
The fees are then split between several parties, seeing the bank take around half for supplying the terminal, and another 20-30 per cent shared between the bank and issuer of the card, while the remainder goes to Visa, Mastercard or whoever is the transfer provider.
Operators are seeing tighter margins, paying more for wages, insurance, finance and produce, and many fear what looms as a significant slug to what are already shrinking profits. A ban on surcharging will force a choice between further profit erosion, cutting staff or increasing the price of food and/or drinks.
Already battling for the beer market, many are inclined to ratchet up dining prices.
Surcharge prevention may see menu prices go up 2.85 per cent, but the reality is that as costs become built into prices those paying cash will also be affected.
The initiative was tabled on the basis that consumers don’t like the fractional charges added at the point of sale, and the matter is being considered by the Reserve Bank of Australia, which last week began a major review of payment costs for retailers, as part of a wider investigation of consumer fees. The RBA is considering payment policies, including whether to recommend also removing fixed, blended or bundled pricing.
“Consumers shouldn’t be punished for using cards or digital payments, and at the same time, small businesses shouldn’t have to pay hefty fees just to get paid themselves,” Treasurer Jim Chalmers
But complex laws govern the ability to cap charges and there are concerns that the RBA may not have the power to do much to curb the credit card companies, let alone global providers, such as Square.
Introduction of the policy, last October, came as electioneering drove the parties toward easing financial pressures on families, with Prime Minister Albanese declaring it his government’s number one priority “to ease the cost of living for households and businesses”.
Conscious of the cross-purpose in the arena of consumer fees, the announcement came with an accompanying pledge to reduce payment fees forced on small business, and $2.1 million in additional funding for the ACCC to enforce surcharge fee regulations.
However, the industry is dubious, with Australian Hotels Association National CEO Stephen Ferguson admitting they have not seen evidence the RBA will bring down fees and suggesting surcharges will need to stay as they are “unless there is meaningful change”.
The AHA believes banning the passing on of fees doesn’t fix the problem, it merely hides it.
Last week the AHA met with the RBA’s head of payments, Ellis Connolly, alongside the Australian Restaurant & Cafe Association, Australian Lottery & Newsagents Association, and advisory group Independent Payments Forum, to outline their concerns.
The proposal has largely been favourably received by the banks, despite the fact that a ban would mean they need to revise their payment terminal plans.
Ferguson says consumers are simply “paying too much” for a service that affects most people. The Associations’ meeting with the RBA on what comes next has prompted yet another ‘Issues’ paper on the discussion.
“If something isn’t done, banks and credit card companies will keep getting away with blue murder,” states Ferguson.
