Thing may be about to get tougher for them and Tyro.

Card payment surcharge billions under RBA microscope

The Reserve Bank may be compelled to follow the UK and Europe and ban credit and debit card payment surcharges, as the billions of dollars in fees paid by Australians each year attracts closer political scrutiny.

Labor MP Jerome Laxale, who represents the north-west Sydney electorate of Bennelong, told federal parliament this week that banks and global card networks were enjoying “kickbacks” from the “rort” of costs being pushed onto customers who paid with a card.

“Card providers, merchant and technology providers, and the banks are having a laugh here, scraping $4 billion off our bank accounts to provide an essential service that costs less to operate and maintain than its free, non-digital alternative,” he said, citing a Canstar estimate.

“I think Australians have had enough of this rort. Being charged to access your own money simply must change.”

The issue has become more acute as the cost of living increases. A customer who buys a $5 cup of coffee will be charged $5.08 if they pay with a card. Payment costs, if not passed on, are a perennial concern for small businesses, hurting margins as more transactions shift away from cash.

In response to the public unease, the RBA, which regulates payments with a mandate to keep costs as low as possible, has brought forward its review of merchant costs and surcharging. It hopes to release a consultation paper by the end of the year.

The RBA review will consider whether surcharging should be banned. Europe and the UK have already outlawed the practice, forcing small businesses to absorb the costs and potentially pass it through in general pricing.

“People don’t use cash any more, so everything is just getting surcharged. It’s prevalent in the retail industry, particularly hospitality,” RBA governor Michele Bullock told a parliamentary committee last Friday.

“We are going to be looking at the economic circumstances now, and whether surcharging is still fit for purpose as an instrument to improve efficiency in competition.”

The RBA does not collect data on how much surcharges are costing Australians, and is seeking numbers from payment providers to quantify the impost.

It estimated in 2022 that 7 per cent of all card payments involved some surcharge, but that figure would be higher today as new payment software makes it easy for merchants to surcharge automatically.

The RBA will also examine whether caps on interchange fees – charged by a merchant’s bank to the bank that provides a card to the consumer – could be reduced.

The Australian Banking Association rejected Mr Laxale’s categorisation of the fees as kickbacks, saying there were costs involved in ensuring payments were made safely and securely.

“Just because payment rails are invisible, like the 5G network and water pipes, it doesn’t mean they are free to operate,” ABA chief executive Anna Bligh said. “They have to be built, maintained and upgraded, which all requires significant investment.”

The ABA said there had been a 13 per cent drop in merchant service fees in the 2022-23 financial year, reflecting more competition in the market.

Mr Laxale will question the major bank chief executives about electronic payment costs when they appear before the House Economics Committee next week.

“I think that Australians have now begun to ask themselves; ‘why are we even being charged these fees at all?’” he said.

The issue has become more acute due to the growing popularity of “blended” payment plans offered to merchants. These charge a flat rate – about 1.2 per cent of the transaction value at major banks, and 1.6 per cent at Square – regardless of whether a customer spends with a credit card or a debit card, which costs less to process.

Blended fee plans are also circumventing a policy known as “least cost routing”, which is supposed to allow merchants to choose the lowest-cost payment network.

The RBA was originally planning on consulting on surcharging as part of a broader review of retail payments regulation, after new laws providing it greater powers over platforms were passed. But that legislation has been delayed given it was stapled to a politically contentious bill on superannuation tax concessions.

Businesses are prohibited from applying a surcharge if they don’t accept cash. They also aren’t allowed to add a surcharge that is more than what it costs them to process the payment. The Australian Competition and Consumer Commission has powers to investigate if businesses break these rules.

The Independent Payments Forum, which is representing the Council of Small Business Organisations Australia, along with service stations, restaurants and cafes, backs the RBA review.

The forum’s co-ordinator, Warwick Ponder, said it would provide an opportunity to “highlight the massive cost-of-living implications caused by the disparity between the fees charged to small businesses and their customers for everyday card payments, compared to big retailers”.