The Reserve Bank has recommended an end to surcharges on EFTPOS payments and cards as part of its investigation into merchant fees, claiming businesses will be better off and Australians will potentially save billions each year.
Payment surcharge laws began in the ‘90s to deter the use of high-interest credit cards, however the outdated legislation does not factor in newer, cheaper options, such as debit card and phone payments.
This week the Reserve Bank (RBA) issued a proposal, stating that surcharging is “no longer achieving its intended purpose” and is more common in the wake of declining cash, and that “around 90 per cent” of businesses in Australia are expected to be better off with its elimination.
“Consumers currently pay around $1.2 billion in card surcharges each year,” said a release by the bank.
“Removing surcharging would make card payments simpler, more transparent and help to increase competition in the card payments system.”
The RBA found businesses are increasingly charging the same surcharge rate across debit and credit payments, and it says there are “significant challenges” with enforcing the existing regulations.
A review of merchant card payment costs and surcharging has prompted a number of proposals, including the removal of surcharges, presented in a consultation paper.
It was also suggested to require card networks to clearly display their wholesale charges, to improve transparency and competition by making it easier for businesses to compare deals.
And the financial regulator also called for the cap on interchange fees paid by businesses to be lowered, potentially saving retailers and consumers another $1.2 billion annually, and putting downward pressure on fees for businesses accepting international cards.
But the ongoing cost-of-living crisis is already putting a major strain on businesses, which under the current system can pass on payment fees, although no more than paid to the provider.
Industry bodies declare that if the ban goes ahead businesses will have no choice but to cut staff or raise prices. If menu and product prices go up, those paying cash will also be affected.
Pubs stuck with fees for transactions and EFTPOS terminals face significant additional costs.
Cobargo Hotel owner David Allen told 9News he is likely to pay up to $1,500 per month per terminal plus the cost of renting the device, projected to amount to “about $20,000 a year”, leaving him no choice but to raise prices.
“There’s just no fat left on the animal.”
R&CA (Restaurant & Cafe Association) CEO Wes Lambert notes businesses previously not paying merchant fees will become stuck with the bill, which can ultimately only mean higher prices for customers, suggesting any perceived ‘savings’ to consumers are “a mirage”.
Australian Hotels Association CEO Stephen Ferguson says the RBA should be doing more for millions of Australians struggling with the cost of living – and for small businesses, with livelihoods on the line.
“The RBA policy to ban surcharges just covers up the problem, when more sunlight on this massive $6.4 billion cost is needed.
“The RBA needs to answer one simple question: if the debit card processing cost on a cup of coffee today is 1.6%, how much will that 1.6% come down under their new rules?”
Ferguson is critical of much of the debate, believing more transparency around fees is not enough to ensure business owners get the best deal, as busy operators may struggle to ‘shop around’ and it is more convenient to simply stick with the devil you know.
Most consumers pay what is known as a ‘blended’ rate, after the retailer pays the bank a flat fee – but the rates are not the same for all businesses, with smaller venues tending to pay a lot more.
The fees are split between the bank, taking around half for supplying the terminal and another share of 20-30 per cent split with the issuer of the card, with the remainder going to the transfer provider, such as Visa or Mastercard.
Ferguson says consumers are simply paying too much for a service that affects most people, as the RBA “is not prepared to take stronger action” on the elements at the heart of the problem, allowing banks and credit card companies to “keep getting away with blue murder”.
“To put it bluntly, it’s a political fix – not a solution,” he opines.
The RBA’s consultation paper is open for feedback until 26 August, prior to any reforms being finalised.
