In White Gum Valley, we are blessed with coffee shops, and most mornings they provide the perfect persuasion for my wife and I to take an early walk.
While our coffee order stays the same, the cost does not. While menus display neat, rounded prices—$4.70 or $5.00, for instance—the amount charged to our credit card often comes out slightly higher at say $4.74 or $5.07.
This discrepancy stems from a growing trend of adding credit card surcharges to advertised prices. Before 2003, businesses were prohibited from imposing extra fees for card payments. However, that year the rules were relaxed, allowing merchants to pass on these costs to consumers. In the years that followed, it was not uncommon to see surcharges of around 3%.
In 2017, the Reserve Bank of Australia (RBA) tightened these rules, limiting surcharges to the actual cost incurred by merchants. This is a somewhat rubbery figure, but the RBA estimates these costs at less than 0.5% for EFTPOS transactions, between 0.5% and 1% for debit cards, and between 1% and 1.5% for credit cards.
Other countries have stricter policies. Since 2018, the UK has banned debit and credit card surcharges, while in Europe, most consumer surcharges, except for on Amex and Diners Club, are prohibited.
In October last year, the RBA launched a review to assess whether current regulations remain appropriate given technological advancements. The findings have yet to be released, but ahead of the report, the government has allocated $2.1 million to the Australian Competition and Consumer Commission (ACCC) to tackle excessive surcharges. In addition, it proposes a ban on debit card surcharges from 2026, subject to the RBA’s recommendations.
In a recent submission, the Commonwealth Bank has urged the RBA to abolish surcharges entirely, not just for debit cards but for all credit cards. According to CBA, this is the simplest way to address the issue of surcharge inequality. However, while this may be an easy stance for a major bank to take, small businesses—the ones actually absorbing transaction costs—may feel differently.
Additionally, the playing field is far from level. Large businesses benefit from better bargaining power and, on average, pay about a third of the fees that smaller merchants do.
Consumers don’t love surcharges. I’m sure small businesses would prefer to absorb or factor these costs into their pricing, but competitive pressures often limit their ability to do so.
It will be interesting to see what recommendations the RBA brews up – hopefully not roasting small businesses in the process. Only time will tell whether the recommended changes provide a practical and fair solution, but one thing that is guaranteed not to change is this bean-counter’s coffee consumption.
by MARK DOUGLAS
FCPA
Managing Partner of Francis A Jones
www.faj.com.au