The End of Credit and Debit Card Surcharges
Starting in October, the practice of charging extra fees for using credit or debit cards will be banned. This decision comes after a comprehensive review by the Reserve Bank of Australia (RBA), which found that these surcharges do not serve their intended purpose of helping consumers make more efficient payment choices.
Governor Michele Bullock emphasized that the changes would simplify card payments for consumers and help businesses get better value from their payment services. She noted that surcharging no longer works as intended, with both consumers and businesses finding the rules complex and confusing. Many consumers have expressed a desire for surcharging to stop altogether.
The ban on surcharges is expected to save shoppers an estimated $1.6 billion annually. Instead of adding these fees at the point of sale, the cost of processing payments will now be included in the advertised price. This approach is preferred by consumers, who find it more transparent and straightforward.
However, business groups have criticized the move, arguing that it could lead to higher prices and reduced transparency. Despite this, the RBA stated that extensive public consultation did not deter them from implementing the change.
According to the RBA, consumers are currently paying $1.6 billion out of a total $1.8 billion in card payment surcharges each year. The surcharging framework, introduced over two decades ago, is no longer effective in guiding consumers toward more efficient payment choices. Factors such as the widespread use of surcharges at the same rate across all cards, challenges in enforcing the current framework, and the decline in cash usage have diminished the effectiveness of the surcharging regime.
In addition to banning surcharges, the RBA will also lower the caps on interchange fees paid by Australian businesses. This change is expected to save consumers about $1.2 billion annually. Interchange fees are paid by businesses to a customer’s card issuer when a transaction occurs. Lowering these caps is predicted to benefit small businesses the most, as they often pay higher fees.
Merchants are expected to save $910 million a year on card payment costs, with $660 million of this amount being earned by Australian banks. However, an additional fee may still apply for Aussies who pay with American Express.
The RBA estimates that 16% of businesses impose a surcharge when customers use a debit or credit card, which equates to a third in the hospitality sector. While the ban on surcharges is expected to reduce costs for consumers, everyday Australians could face higher credit card fees as banks attempt to maintain their reward schemes.
A survey conducted by the RBA of 3,000 people found that three-quarters of respondents wanted surcharges scrapped. Treasurer Jim Chalmers welcomed the move, stating that it would deliver major savings to consumers and small businesses. He highlighted that Australians will no longer pay $1.6 billion a year in surcharges, and small businesses will save $910 million annually when credit and debit card surcharging ends in October.
Chalmers added that the changes would improve transparency at the checkout. “What this will do is give consumers greater certainty and transparency about the total cost of goods and services when they pay by card, while also lowering fees for businesses,” he said.
