Why are we still paying to use a card?

CASH is becoming obsolete and we’re racing towards paying for everything via smartphone, yet these infuriating charges remain.

AS cash goes the way of the dinosaurs and Australia is running headlong towards paying for everything with mobile phones, there’s one question on everyone’s lips.

Why are we still paying fees for the privilege of using a card?

Our use of ATMs has dropped to its lowest level in a decade as “tap-and-go” payments surge in popularity, while eftpos transactions have more than doubled since 2009. Yet many stores continue to charge several dollars to pay with a card, or insist you spend a minimum of $10.

It’s annoying. Paying $1 extra to buy a $3 coffee increases the cost of your morning caffeine hit by a third, and that can really add up.

THE STORES

Major retailers like David Jones generally absorb fees for credit and debit card transactions, but others pass the cost on to you, even increasing it to make a profit.

Retailers have pretty much been allowed to do as they please since the Reserve Bank of Australia introduced the option of transaction fees and card minimums in 2003.

The fees were introduced to encourage use of eftpos debit transactions instead of credit card ones, which incur most of the fees, but many retailers don’t distinguish between the two.

Worse, if you use contactless systems such as Visa payWave or MasterCard PayPass to tap-and-go, your debit card may be charged as a credit card, meaning a premium is slapped on top. It’s often cheaper to use the old, slow method of inserting your card and tapping in your PIN. And that just seems ludicrous.

Banking research and analysis firm East found that 45 per cent of businesses across Australia apply a surcharge, with 29 per cent more considering it. A 2011 survey of 50 stores and supermarkets in Melbourne found around half were imposing minimum spending limits.

Owners say they are just passing on the fees charged by the banks who own the card terminals, which can heavily cut into their profit on small transactions. Other shops hike prices on all goods to cover the cost. But they are coming under increasing pressure to change their ways.

In 2013, the Reserve Bank cracked down on excessive fees, forcing a Sydney carpet store to remove what was dubbed “biggest credit card surcharge in Australia” — a 12.5 per cent fee on customers using Visa, Mastercard and even eftpos. Another consumer complained about a $63 fee on a tour booking, and the Sydney travel agent’s 2.5 per cent surcharge being halved.

Meanwhile, Jetstar and its parent, Qantas, denied making money from booking fees of around $8.50.

Rules vary even among large companies. Woolworths and Coles charge nothing for tap and go credit, debit and Eftpos; Aldi charges 0.5 per cent on credit cards and tap-and-go debit or credit; Westfield car parks charge 2.5 per cent on credit cards and tap-and-go debit or credit and taxis charge 10 per cent on all card transactions, including eftpos.

Using contactless payments may cost you more than tapping in your PIN. Picture: David Kelly

THE CUSTOMER

Last year, non-cash payments worth around $227 billion were made each business day, equivalent to around 14 per cent of annual GDP, according to the RBA. Should we be penalised for choosing plastic?

“Credit card transaction fees are criminal,” Alex Bedford from Geelong, Victoria, told news.com.au. “There is no way it costs one per cent or thereabouts. They should be capped at 12 centes per transaction, max.”

Meredith Nixon from Sydney said transaction fees were out of control. “Minimum spend, in this day and age? It actually deters me from some places as I don’t often have cash on me, so surely that’s bad for business all round?

“Minimum monthly pay-in amounts for fee-free transactions, so poorer people that don’t meet this threshold get penalised twice? Come on. And withdrawal fees — $3 at some to take out my own money. I understand that ATMs require upkeep and maintenance, but I’m fairly certain banks make enough money to do this without the charges.”

A creditcardfinder.com.au study last year found two-thirds of customers shop with credit and debit cards, so stores seem likely to make more money by encouraging repeat custom with no fees, despite the bank charges.

“Businesses who don’t have eftpos are losing almost two in every three customers who don’t have cash on them — 28 per cent would walk out and never return while 31 per cent would shop somewhere else,” Michelle Hutchison from creditcardfinder.com.au told news.com.au

“The remaining 41 per cent of customers would leave the store to find an ATM and return to make their purchase.”

THE BANKS

It seems the banks are most at fault here for charging fees that can seriously affect the bottom line for small businesses. There are:

● One-off fees including terminal establishment fee, closure fee and on-site installation.

● Ongoing fees like terminal rental, access fee and annual fee.

● A service fee on credit card transactions, usually a percentage (0.5-3 per cent).

● Banks may also impose a Merchant Service Fee on credit card transactions.

● A basic fee per eftpos transaction, which tends to be just 10c to 50c.

Banks offer different packages depending on how many transactions a store processes each month, the average value of the transactions and the proportion of debit and credit payments.

Almost all banks, inducing Australia’s big four, allow retailers to charge a “reasonable” fee for using a card, but say they should let the customer know first.

Commonwealth Bank and MasterCard do not allow retailers to impose a minimum amount, while Visa advise against minimums but do not prohibit them. Visa Australia head Vipin Kalra said in 2013 that fees of more than 1.2 per cent for paying with its card could no longer be justified.

WHAT’S GOING TO CHANGE

Between 2010 and 2013, the share of payments made by cards increased by 12 per cent, the RBA reported. With more and more merchants offering card terminals and evolving authentication methods, this is likely to keep increasing.

It certainly doesn’t make sense to charge for use of eftpos. Under-30s made around 80 per cent of their card payments using a debit card, while this was around 50 per cent for all other age groups.

Eftpos Australia CEO Bruce Mansfield said: “Eftpos would prefer to see no minimum limits applied to eftpos cheque and savings transactions. It’s about convenience because having no limits makes it easier for consumers. However, merchants have the choice to set their own limits. It is a matter between them and their customers.”

Kirsty Lamont, director at mozo.com.au, added: “There should be no minimum purchase amount when paying via your savings or cheque account. These are cheap for a retailer to process and should not be passed on to customers.

“To avoid any extra costs at the check-out, use cash or choose to make a ‘savings or cheque’ payment rather than pressing ‘credit’ as you’re less likely to be hit with a fee.”

If it seems archaic, that’s because it is. Contactless and eventually mobile payments will soon be the only option. Charging customers just to shop with you is simply unacceptable.