The Commonwealth Bank of Australia (CBA) has urged the Reserve Bank of Australia (RBA) to outlaw debit and credit card surcharges entirely, highlighting their disproportionate burden on consumers and small businesses. This call comes as the RBA undertakes a major review of the national payments system, aiming to modernize its policies and ensure fairness amidst rising cost-of-living pressures.
Understanding the Current Surcharging Framework
Under the RBA’s existing rules, merchants are allowed to apply surcharges to card payments, but these charges must align with the actual costs incurred by the merchant. These fees depend on the payment method:
- EFTPOS: Typically costs merchants less than 0.5% per transaction.
- Visa/Mastercard debit cards: Range from 0.5% to 1% of the transaction amount.
- Credit cards: Higher costs of 1% to 1.5%.
- Digital platforms (e.g., Square): Can charge up to 1.88% for transactions.
While larger corporations like Coles and Woolworths absorb these costs into their pricing, smaller businesses often pass them on to customers, leading to widespread consumer dissatisfaction. On a $100 transaction, this translates to:
- 28 cents for EFTPOS,
- 52 cents for Mastercard,
- 47 cents for Visa, and
- $1.88 for Square.
A report by Canstar last year estimated that Australians pay an average of $140 annually in surcharges, contributing to a total of $4 billion nationwide.
A Growing Case for Reform
The RBA’s review of payment surcharges comes amid broader scrutiny by the Albanese government. As the nation grapples with inflation and cost-of-living pressures, Treasurer Jim Chalmers has suggested pausing surcharges for debit card purchases for one year. The outcome of the RBA’s review will determine whether this measure goes forward.
Inside sources at the Commonwealth Bank argue that a complete ban on surcharges, similar to policies implemented in Europe and the UK, would simplify the payments system and address inequities. They contend that such a move would reduce financial friction for consumers while encouraging businesses to adopt more cost-effective payment solutions.
Small Businesses Under Financial Strain
While the debate continues, small businesses remain at the forefront of the surcharging dilemma. Many argue that they are unfairly burdened by payment facilitation fees, leaving them with limited options:
- Absorbing costs: This option strains already thin profit margins.
- Passing on fees: Leads to higher prices and customer dissatisfaction.
One small business owner shared their experience, revealing they paid $40,000 in transaction fees using Square last financial year. “We just can’t absorb the costs. Cash is king,” they stated, highlighting the trade-offs small businesses must navigate in a predominantly cashless economy.
Consumer Preferences and Shifting Trends
Despite the financial burden of surcharges, Australian consumers are increasingly opting for card payments over cash due to their convenience and security. According to a Finder survey:
- 74% of Australians believe banks and card issuers should bear transaction costs instead of merchants or customers.
- Only 6% think it’s fair for consumers to pay surcharges.
The shift away from cash is undeniable, but it places additional strain on small merchants, who must adapt to evolving consumer expectations while managing rising costs.
Lessons from Overseas: The UK and Europe
The Commonwealth Bank’s push for reform is inspired by international examples where surcharges have been banned:
- In the UK, surcharges on credit and debit card transactions were prohibited in 2018, requiring businesses to price products without additional fees for card usage.
- Across the European Union, similar rules were introduced, banning businesses from applying surcharges for payments made using consumer credit or debit cards issued within the EU.
These bans have simplified payment systems, reduced hidden costs for consumers, and encouraged businesses to negotiate better rates with payment facilitators. Proponents argue that adopting similar reforms in Australia could yield comparable benefits.
The Road Ahead
The RBA’s review is set to play a pivotal role in shaping the future of Australia’s payment ecosystem. Whether the government opts for a temporary surcharge pause or a complete ban, the outcome will have significant implications for consumers, businesses, and financial institutions alike.
With $4 billion in annual surcharges at stake and growing public support for reform, the pressure is mounting for policymakers to act. The RBA’s decisions will likely influence the Albanese government’s strategies heading into the next federal election, as they strive to address mounting cost-of-living concerns and modernize Australia’s payments infrastructure.
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