Mastercard and Visa have warned of the “unintended consequences” if Labor follows through with its plan to ban card surcharges for consumers and merchants by 2026. The Reserve Bank of Australia (RBA) is looking into how the small, everyday charges are affecting the country and whether they’re still fit for purpose more than 20 years after they were introduced.
Yahoo Finance understands that Mastercard doesn’t set, collect or benefit from card surcharging, and the decision to charge is made by the merchant with their bank or payment service provider (PSP). But the two major card juggernauts have levelled thinly veiled threats to the RBA and Labor about making any big changes to the existing system
“There is no such thing as a free lunch,” Mastercard’s Richard Wormald explained to the Australian Financial Review. “You can’t only look at one side of the equation because there are unintended consequences on the other side.”
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Alan Machet, Visa’s country manager, added: “Further regulation could restrict the ability to deliver these protections and benefits to consumers. Just because the flow of digital payments is invisible does not mean it is free to operate, innovate or future-proof.”
Using the Visa and Mastercard networks to make digital payments provides services that protect customers if they haven’t received their purchases as well as if they’ve been victims of fraud.
The card companies have warned those protections could reduced or even switched off altogether under a surcharging rebrand.
RBA’s investigation into surcharges highlights major problem
The RBA released a report earlier this week about its investigation into card surcharging.
It noted that more people were using cards than cash, which has put pressure on merchants as costs associated with facilitating digital payments rose to an estimated $6.4 billion in 2022/23.
The central bank also found that small businesses copped charges three times more expensive than larger merchants.
Businesses are free to cop the cost to provide digital payments, absorb it into the cost of their goods and services, or pass it on to the consumer.
But the RBA is concerned that Australians are now less able to avoid surcharging as fewer use cash, plus they don’t know if a surcharge will be applied, how much it will be or if they even should be copping one.
“The rise of contactless payments also makes it difficult in many circumstances for the actual dollar amount of any surcharge to be displayed to the consumer before the payment is finalised, as it can depend on what type of card is ‘tapped’ at the terminal,” the RBA said.
What do the banks say about surcharging?
The bosses from two of the Big Four banks have cast doubt on the current surcharging system.
NAB’s Andrew Irvine told an inquiry that while it was warranted when it was introduced in 2003, it doesn’t fit the current cashless landscape.
“I think it behooves us to ask whether it still serves its purpose,” he explained. “It just adds to confusion. It means I don’t know what the price of a good is that I’m buying and I don’t like it.”
Westpac’s Peter King also called out the wild variations on card surcharging available.
“What we have is some merchants are charging fees above their cost, as there is no enforcement of the rules,” King said.
“When you are talking 8 cents on a transaction, is it worth the confusion of what is going on?”
Commonwealth Bank’s CEO Matt Comyn was less receptive to the idea of a shakeup and said Australia already “has one of the lowest costs of acceptance of any market anywhere in the world”.
Surcharging shakeup welcome in small business world
Some small businesses are keen to see the RBA and government ban surcharging, as long as it’s not left to them to pick up the cost.
Dovetail on Overend’s owner Adam Thomson told Yahoo Finance that while it wouldn’t massively impact his cafe’s finances, he knows it would be a welcome change for many of his customers.
“I think it makes perfect sense to ban fees on debit card purchases,” he said.
“I’ve always thought it was very unfair for financial institutions to charge customers to spend their own money, especially as the same institutions are doing all they can to push everyone towards a cashless society. So I support stopping these fees.
“I would hope that there is also some common sense applied to limiting the fees charged for credit card purchases. It’s usually around 1.5 per cent currently, I think this is also too high, and again it’s the consumer who is affected.”
Home Or Away Mechanical in Queensland has been begging customers to pay with cash because the cost of providing card payments is pushing them to the brink.
“[We’re] just sick of the bank fees. We pay between $4,000 and $5,000 a year in bank fees for the EFTPOS machine to hire it and a percentage on every transaction,” owner Michelle Guilford told Yahoo Finance.
“As well as everything else going up in price, it’s just ridiculous. We decided to put the sign up [asking for cash] and it’s been a great success.”
How will Labor’s surcharging ban work?
This is the major question being asked since it was announced earlier this week and unfortunately, the government hasn’t provided the specifics on who will have to shoulder the burden of surcharging.
“Consumers shouldn’t be punished for using cards or digital payments, and at the same time, small businesses shouldn’t have to pay hefty fees just to get paid themselves,” Treasurer Jim Chalmers said.
“This is all about getting a better deal for consumers, reducing costs for small businesses and promoting a more competitive payments system.”
“My government’s number one priority is to ease the cost of living for households and businesses, and this is another step to protect Australians,” Prime Minister Anthony Albanese added.
If they ban surcharges just for the consumer, then a small business could be forced to pay thousands of dollars a year to allow card payments. If businesses were spared, then it would be up to banks and PSPs to cop the hit.
A poll of hundreds of Yahoo Finance readers found an overwhelming majority (81 per cent) believe the responsibility should rest with banks and PSPs.
If Labor gets its way, it will have surcharging outlawed by January 1, 2026.
While it awaits the RBA’s final report on the topic, the government has given the consumer watchdog $2.1 million to strengthen its resources to go after retailers who are over-surcharging Aussies.
The Australian Competition and Consumer Commission (ACCC) can impose penalties of more than $1.35 million for a single violation of surcharging if the case goes to court.
The ACCC can also hand out infringement notices of $12,600 for private businesses and $126,000 for businesses listed on the share markets outside of court.
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