Australia’s financial landscape may see a major shift as Mastercard, Commonwealth Bank of Australia (CBA), and other industry leaders push for a ban on credit and debit card surcharges.
With the Reserve Bank of Australia (RBA) reviewing the surcharging ecosystem, these financial heavyweights argue that the current system is outdated and leads to unnecessary costs for consumers.
Case Against Surcharges
Surcharging, introduced in 2003 to curb excessive credit card usage, allowed merchants to pass on the cost of card transactions to customers. Initially aimed at reducing merchant fees and encouraging responsible credit usage, the system has evolved into a contentious issue.
CBA Support a Ban
- Excessive Surcharging: Mastercard’s submission to the RBA highlights that surcharges often exceed actual processing costs due to limited regulatory oversight.
- Lack of Competition: Merchants rarely “shop around” for the best payment service provider (PSP), resulting in high transaction fees that are passed to consumers.
- Transparency Issues: CBA and others argue that surcharges obscure true prices, frustrating customers who don’t see the final cost until payment.
- Consumer Impact: Both organizations warn that allowing surcharges on only one type of card (e.g., credit) could lead merchants to increase prices for those transactions, creating inequities.
Surcharge Rates
| Payment Type | Typical Surcharge Range |
|---|---|
| EFTPOS | 0.5% or lower |
| Debit Cards | 0.5% – 1.0% |
| Credit Cards | 1.0% – 1.5% |
While these rates seem manageable, merchants using fintech PSPs or blended pricing models often impose higher fees.
Competition
Square’s submission noted that increased competition among PSPs has already reduced average merchant fees by 15% over the past decade. Fintech innovations have challenged the dominance of Australia’s big four banks, whose market share has dropped from 73% to 63%.
However, organizations like the Independent Payments Forum (IPF) argue that small businesses continue to face higher fees compared to large corporations, costing them $1.7 billion more annually.
Proposed Solutions
- Ban Surcharges Entirely: Supported by Mastercard, CBA, and NAB, this would align Australia with practices in Europe and the UK.
- Introduce a Comparison System: A system allowing merchants to evaluate PSP fees could drive competition and lower costs.
- Preserve Simple Pricing: Many industry groups support maintaining access to simple pricing models for small businesses, ensuring affordability.
Upcoming Decision
The RBA’s investigation aims to strike a balance between consumer protection and merchant needs. Early indications suggest the agency is leaning towards greater transparency and fairness in transaction fees.
NAB boss Andrew Irvine summed up the sentiment, stating, “It just adds to confusion… I think it behooves us to ask whether it still serves its purpose.”
Consumer Cost
Estimates of surcharging costs vary widely, with annual impacts ranging from $400 million to $4 billion. A recent analysis of RBA data suggests Australians are paying close to $960 million per year in surcharges, highlighting the system’s financial burden on consumers.
Looking Ahead
The RBA’s decision could redefine Australia’s payment landscape. A ban on surcharges would simplify transactions, promote fairness, and reduce costs for consumers. However, balancing the needs of merchants, PSPs, and consumers will be key to ensuring an equitable solution.
SOURCE – LINK
FAQs
What is a card payment surcharge?
A fee merchants charge customers to cover transaction costs.
Why are surcharges being reconsidered?
Concerns about fairness, transparency, and excessive fees.
How much do surcharges cost Australians?
Estimates range from $400M to $960M annually.
Who supports banning surcharges?
Mastercard, CBA, NAB, and other industry leaders.
What is the RBA’s role in surcharges?
The RBA regulates and is reviewing surcharge policies.
