Card payment surcharges are the reason why a banh mi advertised for $10 could end up costing you 10¢ or 20¢ more.
And each year Australian consumers fork out a total of about $1 billion in such surcharges as all those small payments when a card is used add up.
The surcharges, typically 0.7 per cent, are not supposed to exceed what it costs a business to process the payment, a figure that ranges from as low as 0.3 per cent of the transaction value to well above 2 per cent.
The Reserve Bank is reviewing card surcharging.Credit: Pat Scala
But many people complain that businesses are charging surcharges far beyond their cost of accepting card payments.
“There’s been profiteering,” payments expert Mike Ebstein said.
Debit card surcharges may disappear next year, as part of an Albanese government pledge to cut costs for consumers.
“It’ll be a good thing for cardholders,” Ebstein said.
Credit card surcharges would remain, as these cards are much more expensive to process.
The Reserve Bank, which regulates the complicated world of payments, said it had received feedback that customers do not like surcharges and do not know when they will be charged or by how much.
The central bank will release its report on surcharging shortly, and the government will then decide whether to ban debit surcharges, while seeking to not disproportionately hurt small businesses.
“We’re cracking down on unfair and excessive card surcharges to get a better deal for Australians and small businesses,” a spokesman for Treasurer Jim Chalmers said.
“We’re prepared to ban debit card surcharges subject to the further work under way now by the Reserve Bank if there are sufficient safeguards to ensure both small businesses and consumers can benefit from lower costs.”
The Reserve says small businesses can be charged a whopping three times more in transaction fees than larger merchants.
The hospitality industry warns that menu prices will have to rise if businesses can no longer recover the cost of debit card payments from customers, saying a coffee that now costs $5.08 with a card surcharge might rise to $5.50.
“Of course it will be inflationary,” said Wes Lambert, chief executive of the Australian Restaurant and Cafe Association. “Removing a debit surcharge will translate directly to the bottom line. And to mitigate this drop in profit, we’ll see a sharp increase in prices much greater than 8¢ that we currently pay on a cup of coffee. We’ll be rounding that [price rise] to 10¢, 20¢ or even 50¢.”
The Australian Restaurant and Cafe Association, the Australian Hotels Association and the Australian Lottery & Newsagents Association are lobbying the Reserve Bank against a ban.
Card surcharging is more common in cafes, restaurants and pubs than in other sectors, the Reserve said.
But Ebstein said the removal of surcharges would have a negligible effect on consumer prices and that any ensuing price rises by businesses would be opportunistic. He said the cost to merchants of accepting cards had reduced significantly since the Reserve first allowed surcharging in 2013.
Ebstein, of MWE Consulting, said businesses should regard card payment costs as another cost of being in business.
“You don’t charge someone an extra bit because you’ve just done an advertising campaign, or you’ve just paid your electricity bill,” he said. “Card costs actually reduce your overall costs because 30 years ago you were maintaining accounts for customers, there was a cost; most of your payments were in cash, there was a cost.”
Palace Cinema chief executive Benjamin Zeccola. Credit: Jason South
Palace Cinemas chief executive Benjamin Zeccola said banning card surcharges would do “serious damage to the sectors driving economic activity and employment”.
Surcharging helped businesses recover their costs transparently, Zeccola said.
“If government reform eliminates that transparent mechanism without care, it’s not cutting ‘junk fees’ – it is foisting them invisibly onto small businesses, pushing prices up, or worse, tipping fragile businesses over the edge,” he said. “That’s inflationary, not protective.”
Family-run book retailer the Book Grocer goes against the norm by not charging the surcharge at the point of sale.
“All of us find it annoying as consumers and so have avoided inflicting it on our customers,” co-owner Tony Sidebottom said. “We also try and offer the cheapest books in the marketplace and this message doesn’t sit comfortably alongside the surcharge.”
Sidebottom said the Book Grocer regarded the surcharge as just another cost, like electricity.
Tony Sidebottom of the Book Grocer, which does not apply a surcharge at the point of sale.Credit: Paul Jeffers
“The consumer pays for it anyway, really. With our business, our margins reduce very slightly but when we’re considering pricing decisions, it’s something we take into account.”
The Australian Competition and Consumer Commission said misleading surcharging practices were a compliance and enforcement priority. It regularly received tip-offs about alleged excessive surcharging, particularly by small and micro-businesses, it said.
But big companies are not immune to excessive card surcharging. The competition watchdog said Europcar, Fitness First and Nine Entertainment, owner of The Age, had been financially penalised for charging surcharges that were greater than their costs.
The Australian Banking Association said consumers “should always know the cost of an item before they pay for it”.
The association said while it wanted to see less surcharging, prohibiting it “would represent an abrupt shift to a practice”.
Surcharging rules
Consumers using eftpos and the debit and credit systems of Mastercard and Visa cannot be surcharged in excess of a merchant’s cost of acceptance for that card system.
Merchants are required to prominently disclose the terms of any surcharge.
- If no surcharge-free method is offered, the amount of the surcharge should be built into the base price and not added on to the price of an item.
- Consumers who wish to avoid paying a surcharge should ask the merchant to identify an alternative non-surcharged payment method.
Source: The Reserve Bank
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