Many countries have banned credit card surcharges, but Australia is still debating whether to follow suit. In the UK, surcharges for consumer credit and debit cards have been banned since 2018. Across Europe, most surcharges, except for American Express and Diners Club, are also prohibited. The question is, why hasn’t Australia taken similar steps?
The Push for Change
In October 2024, the Reserve Bank of Australia (RBA) launched a review of merchant card payment costs and surcharging, aiming to assess whether the current regulations are still effective in today’s rapidly changing payment landscape. The review seeks to make transactions more transparent, lower costs for consumers and merchants, and ensure that payment regulations are up to date.
Consumers overwhelmingly dislike surcharges, viewing them as an extra cost that diminishes the value of a purchase. The Australian Banking Association (ABA) has backed the review, calling for reform. They argue that consumers should not face surcharges for bundled costs, like point-of-sale systems or business incentives, which merchants sometimes pass on to customers.
The debate intensified when the Australian government announced plans to ban debit card surcharges by 2026, pending the RBA’s review. If the ban extends to other card payments, businesses may have to absorb transaction fees or increase prices to cover the costs of accepting card payments.
The Impact on Small Businesses
Currently, small businesses in Australia pay significantly more in transaction fees than large businesses. While the average fee is lower than in the US, it’s still higher than in Europe. Small businesses pay up to three times more per transaction than large merchants, who can negotiate lower rates. In some cases, the cost of accepting card payments can range from under 1% to over 2%, depending on the merchant.
The RBA has suggested the possibility of reducing these fees by capping interchange rates or allowing more competition in debit card routing, which could offer cheaper options.
Cards and Digital Payments: A Dominant Force
Card payments, including credit, debit, and prepaid cards, are the most common payment method in Australia, making up 75% of all consumer transactions in 2022. Digital wallets like Apple Pay and Google Pay are also growing rapidly, now accounting for 44% of in-person payments. In addition, Buy Now, Pay Later services have become incredibly popular, used by nearly one-third of Australians.
Despite the widespread use of cards, the question remains: Are surcharges still necessary? The RBA believes they help consumers compare payment options, potentially driving market forces. However, for everyday purchases like a cup of coffee, do we even notice the surcharge?
The Current Rules for Surcharges
Under existing regulations, businesses can only charge a surcharge that reflects the actual cost of accepting card payments. This includes gateway fees, terminal costs, and fraud prevention measures. If surcharges are applied across different payment types, they must not exceed the lowest fee charged for any one method.
Excessive surcharges are prohibited, and the Australian Competition and Consumer Commission (ACCC) has reported a rise in complaints about unfair surcharges, with nearly 2,500 complaints filed in just 18 months from 2023.
The Future of Surcharges in Australia
The debate over credit card surcharges in Australia continues, with the government and the RBA reviewing options to reduce costs for both consumers and businesses. As digital payments continue to dominate, the question remains: Should Australia follow the lead of other countries and ban surcharges entirely? Time will tell, but for now, Australians will have to navigate the complexities of the payment system and surcharges for the foreseeable future.
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