As Australia shifts to eliminate debit and credit card surcharges in October, there’s a possibility that credit card rewards may decline, and businesses could raise their prices.
Why are surcharges prohibited?
Surcharges were initially introduced by the RBA back in 2003, during a time when cash transactions were predominant. The goal was to incentivize cash usage, given its lower processing costs, and to help cover expenses related to credit card payment systems.
However, the RBA has concluded that this system no longer serves its purpose. With a growing number of Australians moving away from cash, surcharges are becoming more widespread and are often applied to unrelated costs. In fact, the percentage of businesses adding surcharges has doubled over the past six years to around 16%.
A survey by the RBA revealed that 90% of consumers are unsure about when they might incur a surcharge, while 70% express a desire for this practice to stop. Additionally, 60% would prefer prices to be all-inclusive rather than having card surcharges itemized.
Will consumers benefit from the change?
Yes and no.
On one hand, consumers will encounter fewer unexpected charges at checkout and enjoy clearer pricing. Conversely, some might find themselves at a disadvantage if businesses and banks respond by raising prices or implementing other means to recuperate lost surcharge income.
Consumers will no longer face extra fees when they use their cards, paying simply the listed price instead. Major card companies like Visa, Eftpos, and Mastercard are expected to comply with the RBA’s directive to prohibit additional charges. Currently, consumers collectively pay around $1.6 billion in surcharges each year.
The RBA believes that with the elimination of extra fees, shoppers will be encouraged to use credit or debit cards more often, instead of cash. Still, while the government suggests changes will assist with living costs, it’s not certain that consumers will see a reduction in fees. Any loss in surcharge income might lead to menu price increases.
The Australian Bankers Association has indicated that credit card users might face increased fees. The association’s chief executive noted that cardholders may experience higher fees, steeper interest rates, and potentially shorter interest-free intervals.
The RBA sees this as a crucial reform. The current setup imposes undue costs on lower-income individuals who rarely use credit cards and miss out on the perks associated with them.
What will change for your business?
The upcoming reforms are likely to impact corporate profits significantly. Revenue from surcharges will disappear, and while it may reduce the fees businesses pay to payment systems, it won’t eliminate them entirely.
The RBA predicts that prices on menus and shelves will rise, contributing to an inflation increase of about 0.1%. Some businesses have mentioned to the RBA that price hikes might deter customers, especially cafes and restaurants, which heavily rely on surcharges and are vulnerable to changes in consumer spending.
In response, businesses might opt for more affordable payment service providers. The RBA found that less than 10% of businesses switched providers between 2024 and 2025, signaling a need for more such transitions.
Banks may also see a shift in customers toward alternatives like Square and Tyro, who have welcomed the forthcoming changes. The CEO of Tyro stated that while banks will lose some revenue, the company will also benefit from lower costs.
How does it work?
Key changes include lifting the ‘no surcharge’ rule for Visa, Eftpos, and Mastercard starting October 1st. The RBA expects these networks to start preventing merchants from applying surcharges. If they fail to do so, the government may enact a formal ban on surcharges.
The second part involves capping interchange fees, which are the charges that banks and payment services impose for transactions between customer and business banks. Credit card interchange fees will be capped at 0.3% of the transaction amount, a drop from the current average of approximately 0.5%. This cap aims to create a more equitable market. While some larger companies charge less than 0.2%, smaller ones have charged up to 0.8%, which will no longer be acceptable.
The RBA is also set to reduce the cap on debit interchange fees to 8 cents (or 0.16%) per transaction, a rate that’s only slightly above current levels. While credit still costs more than debit, the difference isn’t vast anymore.
The final part of the reform will begin on April 1, 2027, requiring payment providers to disclose their fees, encouraging businesses to explore cheaper options.
Additionally, banks and payment providers must show that they are passing on the benefits of reduced interchange fees, especially given the RBA’s concerns about complex and “opaque” fees that could rise without competitive pressures.
Who will pay for the changes?
The banks will handle the costs directly. The RBA anticipates that major card issuers could see a revenue loss of around $660 million annually, predominantly from credit card interchange fees.
Smaller providers like Square and Tyro have reacted positively to the reforms. Tyro’s CEO mentioned that while banks might lose revenue, their company will also experience decreased costs.
However, some businesses are still likely to face losses, according to industry warnings. A finance professor indicated that while banks can absorb these losses, they might recuperate by hiking other fees or cutting back on credit card benefits.
“They can be quite inventive in how they charge for different banking services,” the professor commented.
Changes in bank fees could impact all businesses, including those that don’t currently impose surcharges. The reactions from banks will remain unclear until October. NAB is currently weighing its options, while ANZ, Westpac, and Commonwealth Bank have yet to respond to inquiries.
The Australian Council of Small Business Associations has cautioned that consumers may face higher prices if banks unexpectedly increase costs for businesses.
According to the council’s chairman, the timing of banning surcharges before businesses have understood their fees feels premature.
Businesses are also worried about being unable to charge extra for high-cost American Express cards. Discussions around Amex, alternative payment options, mobile wallets like Apple Pay and Google Pay, as well as e-commerce platforms, are anticipated to occur later this year during RBA consultations.
