The Reserve Bank of Australia (RBA) is currently reviewing how credit card surcharges are handled in the country. With proposed changes that could ban these surcharges for some or all payment methods, the potential impact on consumers, businesses, and payment systems is significant. Let's break down what this all means in simple terms.
What are credit card surcharges?
When you pay with a credit or debit card, some businesses apply an extra fee to cover the cost of processing that payment. This is called a credit card surcharge. These fees help businesses recoup expenses associated with using payment systems, such as transaction fees charged by card providers or terminal costs.
The push for change
The debate around surcharges has gained traction in recent years. Many countries, including the United Kingdom and most of Europe, have already banned surcharges for consumer card payments. Now, Australia is taking a closer look.
The RBA launched a review in late 2024 to assess whether the current rules are still appropriate. It's examining things like surcharges, transaction fees, and how payments are regulated. The ultimate goal? Lower costs for both merchants and consumers and greater transparency about these fees.
The debate heated up when the government announced plans to ban debit card surcharges entirely by January 2026, pending the results of the RBA’s review.
Why this matters for consumers
Most customers aren't fans of surcharges. A surcharge can feel like a personal loss of value, similar to missing out on a discount. From a customer's perspective, banning these fees makes everyday transactions simpler and less frustrating.
Major credit card providers and banks also support reform. For instance, the Australian Banking Association has argued that businesses shouldn't be able to pass on unrelated costs, such as point-of-sale systems or business incentives, to consumers through surcharges.
The small business dilemma
While banning surcharges may seem like good news for consumers, it's more complicated for businesses. If surcharges are banned, merchants will need to either absorb the cost of processing card payments themselves or raise their prices to make up the difference.
This is particularly challenging for small businesses. On average, small merchants pay three times more in card fees than their larger counterparts. For them, these fees can range from less than 1% to over 2% of the transaction value. This disparity creates an uneven playing field, making it tougher for smaller businesses to compete.
Card payment trends
Card payments and digital transactions now dominate how Australians pay. Here are some key trends to know:
- Cards account for 75% of all consumer payments in Australia.
- Contactless payments make up 95% of in-person transactions.
- Mobile wallet use (e.g., Apple Pay, Google Pay) has surged to 44% of point-of-sale payments.
- Online payments have grown to represent 18% of retail transactions.
With cash use on the decline, card processing fees are becoming an unavoidable cost of doing business for many.
Current surcharge rules
Under current regulations, businesses can charge a surcharge, but it can’t exceed the reasonable cost of using that payment method. This includes costs like gateway fees, terminal fees, and fraud prevention. Any excessive surcharges are banned, and businesses must justify their calculations.
If customers don’t have a way to pay without a surcharge (e.g., no cash option), businesses must include the surcharge in their displayed prices.
Average fees, according to the RBA, are as follows:
- Eftpos: Less than 0.5%
- Visa/Mastercard Debit: Between 0.5% and 1%
- Visa/Mastercard Credit: Between 1% and 1.5%
Unfortunately, even with these regulations, complaints about excessive surcharges have been on the rise, with thousands of reports filed with the ACCC.
What could happen next?
If surcharges are banned, it could simplify payments and reduce surprise fees at checkout for consumers. However, businesses will face hard choices, particularly small businesses that may struggle to absorb additional costs.
The RBA has also suggested that lowering interchange fees or introducing competition in payment routing could help reduce overall costs. This would involve new frameworks to ensure everyone—big or small—has access to fair and reasonable transaction rates.
Where do we go from here?
For now, the future remains uncertain. The results of the RBA review and the government’s next steps will likely shape how surcharges are handled in Australia.
At LEAD Advisory Group, we’re keeping a close eye on these developments to help individuals and businesses understand the implications. If you have questions about surcharges or how potential changes could affect you, get in touch with us.
Stay informed, plan ahead, and be ready for whatever comes next.
