Card not present: industry calls for more change after debit fee dump

Payments industry figures say the move to ban debit card surcharges doesn’t go far enough to fix the problems in the sector.

A plan to ban debit card fees by 2026 has been welcomed by some sections of the financial system, while others are warned about the hit on consumers. Picture: David Mariuz/NCA NewsWire

A plan to ban debit card surcharges by 2026 has been welcomed by some sections of the financial system, while others have warned any move risks enabling questionable providers who allow business to bump up their costs for customers.

The Albanese government announced on Monday it would scrap debit card surcharges by 2026, under a mooted review of the payments system.

But the Coalition warned the proposal “lacks detail”, offering lukewarm support for nixing the card costs.

The move would see debit transactions, currently average 8c per transaction with individual merchant rates of 10c or 0.20 per cent, slashed to zero.

The RBA announced on Tuesday it would also review the regulation of the payments system, including examining the costs businesses faced when taking card payments as well as the broader surcharging framework.

Shadow financial services spokesman Luke Howarth alongside shadow treasurer Angus Taylor. Picture: Matthew Poon

But the Independent Payments forum, which represents many convenience stores and small businesses, said the RBA should also look at fees charged to businesses before banning surcharging.

Businesses are currently able to pass on surcharges to customers for both credit and debit transactions, often at a higher rate for the credit payments.

However, some companies also “mix” the transactions, charging a flat fee for both, leaving those paying on debit to foot an otherwise higher bill.

This is alongside a fee for the different payment rails, Eftpos, MasterCard, or Visa, each of which attracts its own cost to transact on.

In 2003, the RBA imposed a surcharge on MasterCard and Visa, as both payments previously required no cost be passed on to users of their platforms.

A similar system was also imposed on debit cards in 2007, removing surcharge limits.

However, this move has attracted criticism, with market watchers warning it has allowed businesses to pass through costs in excess of their card payments to consumers.

This came at a time when cash still predominated in the financial system, with the rise of electronic payments leaving physical currency now a small slice of the overall payments landscape.

The rules also excluded several digital payments platforms including Stripe, Square, Adyen and PayPal who remain outside the RBA’s remit.

The Australian Banking Association said the current surcharging rules were “more than 20 years old” and “no longer fit for purpose” noting more than 90 per cent of payments are now made electronically.

ABA chief executive Anna Bligh said the move to dump debit card surcharges “would be a win for consumers and lead to more clarity and certainty for them”.

“It makes sense that consumers know the final price before they go to pay,” she said.

“Our industry will work with the RBA, the Government and retailers through this review process to get a better outcome for Australians.”

Grant Halverson, a payments consultant, said the ban on debit transactions was a “partial solution to the problem in the Australian payments industry”.

Zeller CEO Ben Pfisterer says the payments company is looking to go global.

Ben Pfisterer, boss of Melbourne payments company Zeller, said scrapping debit costs could prove problematic, noting Australian businesses already had access to some of the lowest costs for blended rates on card payments in the world.

Mr Pfisterer, who previously ran rival payments company Square’s Australian business, said there was a “common misconception that interchange rates are the only costs that go into safely processing a transaction”.

“Interchange is now only a minority cost line amongst myriad rising costs,” he said.

“These are very real cost areas that need to be undertaken to help make Australia’s payments ecosystem one of the most secure, innovative and competitive payment systems in the world.”

But Mr Pfisterer said despite Australia having low card costs, there are “clearly providers encouraging and facilitating excessive surcharging”.

“The RBA’s policy clearly outlined that surcharging anything ‘above the reasonable cost of payment processing’ was prohibited, so whenever extra services or benefits like frequent flyer points are layered onto the underlying payment costs, then there’s clearly an issue,” he said.

“Unfortunately, this has been allowed to go for so many years without it being challenged or enforced.”

Payments firm Live Payments offers its business users the ability to earn Qantas points, offering users processing fees up to 2.59 per cent which can be passed on to customers.

National Australia Bank offers its customers the ability to charge surcharges up to 15 per cent on the bank’s payments terminals, but warns businesses to “not act in a misleading or deceptive way”.

Several market watchers have singled out the Australian Competition and Consumer Commission as a weak link in policing excessive payments surcharging, noting the regulator has the power to take aim over the issue.

The ACCC was handed a further $2.1m by the government “to tackle excessive surcharges”. A $159,840 fine handed to Nine Entertainment in July 2021 stands as the biggest penalty meted out by the ACCC policing payments surcharging after taking aim at the media company after billing customers well in excess of its actual card payment costs.

Nine also repaid $450,000 to wrongly charged customers over the wrongdoing.

Mr Pfisterer said the RBA and the ACCC should “reinforce the mandate that all payment providers have to remove costs that aren’t directly related to processing the payment”.

He said limiting the ability for any surcharge to be applied that’s higher than the underlying cost and forcing companies to display the full transaction amount inclusive of any surcharge was necessary.

“Both these steps would go a long way in curtailing the clear examples of excessive surcharging.”

Originally published as Card not present: industry calls for more change after debit fee dump