Card surcharge con. Big banks win, consumers pay

The ban on card surcharges coming into force later this year meant huge relief for consumers, but small businesses will pay them and big banks will win. Michael Sainsbury reports.

When the Reserve Bank of Australia announced last week that it would ban all debit and credit card surcharges from October, RBA governor Michele Bullock framed it as overdue consumer aid.

What he didn’t say was that every small business in Australia that could no longer transparently pass on card costs would now pass them on to prices, feeding directly into the measure of inflation that Bullock himself was charged with taming.

Given that the board is already making worrying decisions on rate cuts amid sticky inflation and the ongoing oil shock, these price increases spread across hundreds of thousands of businesses could tighten the calculations on rates for every household with a mortgage in exactly the wrong direction.

The RBA poured fuel on the inflation fire it was supposed to put out.

“This was their opportunity to do real reform of the payments system and they did nothing. It’s a complete joke,” said Brad Kelly, co-founder of the Independent Payments Forum. MWM. “It leads to inflation. It discriminates against small businesses and firmly entrenches the cross-subsidization of small businesses to big businesses.

“The reality is that businesses will increase their fees; for your $10 cup of coffee and muffin, it will be $10.50 or $11, not $10.16.”

There is also a serious question as to whether the RBA acts independently.

In October 2024, Chancellor of the Exchequer Jim Chalmers publicly threatened to introduce legislation to ban debit card surcharges if the RBA’s review fails to yield results. The central bank duly delivered and then expanded some of the ban to include credit cards.

The final package fits so closely what Chalmers wanted that the idea of ​​impartial determination of regulations strains credibility.

Surcharges canceled, resulting in $1.6 billion consumer victory

follow the money

Prime Minister Anthony Albanese led the way on social media as federal Labor MPs dutifully chanted Chalmers’ lyrics: “Card surcharges to be banned from October, saving money with every tap.”

Chalmers, consumers Save $1.6 billion.

The small business decision was the exact opposite.

Australian Restaurant and Cafe Association CEO Wes Lambert said: “The RBA’s decision is unconvincing. They have failed to explain how this will reduce costs for small businesses, which is one of their stated missions.”

“We expect that restaurants and cafes across the country will be forced to raise menu prices on October 1. And in fact the RBA has said it will be more transparent for consumers if they can see the higher price in one place.”

Theo Fokkare, chief executive of the Australian Convenience Stores Association, whose members deal in high-margin, low-volume transactions where every basis point matters, said the RBA had caved in to political pressure.

“They’ve completely ignored the feedback from people who have actually experienced this failed payment system, and all they’ve done is bow to political pressure and wrap it in so-called cost-of-living savings for consumers, but the end result will be the price of everything going up, even for those using cash. The reality is that all merchant fees that can’t be charged will now be included in the cost. So ultimately everyone pays more for everything.”

The real winners were the tax-minimizing US card programs Visa and Mastercard, and Australia’s taxpayer-backed banking oligopoly. That was “the general consensus in the room from many stakeholders,” Lambert said.

Ultimately, the overall winners of the day were banks and payment service providers.

To understand who won and who lost, it helps to understand what Australia is like. More than $6 billion worth of payment machines it works.

Exchange fees The amount buyers pay to card-issuing banks is approximately $1.5 billion annually, corresponding to approximately 65% ​​of the cost of credit card transactions. Net plan fees paid to networks such as Visa, Mastercard and EFTPOS are approximately $1.8 billion per year and are mostly borne by buyers and passed on to sellers.

The remainder, approximately $2.4-2.7 billion, reflects buyer and payment service provider margins.

Change covers will reduce the amount merchants pay to banks by approximately $910 million per year; this money often subsidizes loyalty programs. Banks are making the biggest cut on paper, but Commonwealth Bank flagged changes to its rewards programs just hours after the announcement.

Visa and Mastercard operate profit margin around 50%Any business that previously referred customers to cash routes (or EFTPOS) will now benefit from the increase in card transactions created by the surcharge ban, as they will no longer be able to show that the card is more expensive through surcharges. This means they will now likely default to card plan (Visa/Mastercard) payments.

Additional fee confusion

The surcharge framework was designed, implemented and repeatedly defended by the RBA over two decades. Bullock joined the bank’s Payments Policy Department in 1998 as Chief Manager, and was promoted to Head of Payments Policy in 2007. 2008 review declared this framework to be sound.

As recently as December 2023, Bullock was still advocating surcharging at the Australian Payments Network Summit, arguing that “the right to surcharge provides a significant incentive for payment plans to keep their fees low.”

Within two years the framework built on this principle was completely abandoned.

Blended pricing was the mechanism used to play this game. Payment service providers like Square, Tyro, Zeller, and Smartpay have brought their margins into the mix by offering merchants a single flat rate that covers all card types.

A customer paying with a basic debit card, whose actual interchange cost may have been 0.2%, was charged the same surcharge as if he had paid with the most expensive premium card.

The RBA framework allowed this and the new regime leaves it as it is. RBAs result document It confirmed that payment service providers “will also maintain the ability to offer a variety of pricing plans, including those that combine debit and credit pricing.”

Two holes in the pack reveal the limits of what a weak regulator can do when faced with a powerful oligopoly and two of the world’s most profitable card schemes.

gift to banks

The first is commercial cards, a gift given to major banks that has been almost completely ignored in mainstream coverage. The RBA is not changing the interchange fee cap on commercial card transactions; 0.8%. However, the 0.5% weighted average criterion will be removed as of October 1.

This means that the average purchase for business card transactions may actually increase.

RBA’s own July 2025 advisory warned that issuers risked heavily promoting more expensive commercial card products; That’s exactly what big banks are now preparing to do, industry sources say.

The federal government itself is the nation’s largest user of commercial cards. $3 billion all-government travel and purchasing account it is held solely by NAB and operates almost entirely on Visa commercial cards at 0.8%. As Kelly said MWM:

“The Australian government is the biggest culprit in the use of business card exchange. Every time a public official books a flight or stays in a hotel with their NAB corporate card, the merchant at the other end earns 80 basis points. The government’s reform has essentially just given NAB a sugar hit, causing Australian merchants to pay more.”

The second failure is to deny authority lowest cost routingThis allows merchants to route bank transactions through the cheaper EFTPOS network rather than Visa or Mastercard rails.

A small business in Tasmania saved more than $100,000 in a single year after implementing it. Fokkare was clear about what real reform would require: “They need to introduce dynamic least-cost routing, ban blended rates, and regulate plan fees charged by Visa and Mastercard. All this advice is basically for nothing, it’s a complete waste of time.”

The surcharge ban will stop the visible bleeding at the register, but it will not stop the bleeding itself. This will take it to the price of a coffee, a restaurant meal and the council’s interest rate report, and from there to the inflation data that arrives on Michele Bullock’s desk every month, leaving her facing the consequences of a reform she both helped design and, two decades later, declared failed.

Interest rates rose, the dollar fell. Reserve Bank downsized due to poor review