Australians hate surcharges, so why don’t we move to QR codes?
Whenever I traveled to Japan, I made a point to carry cash with me. From where? Because, unlike Australia, Japan is still a country where cash is king: a fact that always rears its head when my pockets are empty and my stomach grumbles for a mouth-watering snack from a tiny cash-only stall.
Since the early 2000s, Japan has also relied on IC cards, which are contactless smart cards like Suica, PASMO, and ICOCA that you’ll see millions of Japanese using to take advantage of the public transportation system and shop at select stores.
My credit card is equipped with Suica And some cash, when I arrived in Japan last month, feeling smugly satisfied with my rare gift of foresight (longtime readers will remember my misadventures when I relied solely on card on a trip to the US).
However, my satisfaction was short-lived. Across the country, I noticed that almost every store in sight had a new red and white logo in the window, often with a QR code. Infiltrated? PayPal.
The name left little mystery about what this new business does.
But it took me a while to figure out exactly how it worked (largely because I ignored it until I had to scan a card at a store that didn’t accept card payments and discovered PayPay could only be used by those with a Japanese phone number).
When I asked people in Japan why these QR code payments had become so popular, they said it was because they were cheaper for businesses.
This is probably true. PayPay started in 2018 as a payment service provider that charged no fees to attract business. A few years ago, it introduced fees of between 1.6 percent and 1.98 percent (though still lower than the fees Japanese businesses typically face when accepting card payments).
But PayPay also emerged at a time when the Japanese government was trying to make the country less dependent on cash. In Australia, cash use will account for only 13 percent of transactions in 2022, while notes and coins are still used in around 40 percent of transactions in Japan. This came after the Japanese government’s efforts to encourage people to switch to digital payments through discounts.
Meanwhile, in Australia, it hasn’t been too difficult for us to switch to using credit or debit cards and, more recently, tap-and-go payments via our smartphones. Turns out Australians love contactless payments.
This has also helped Australians purchase technology such as smartphones very quickly, with major retailers such as Coles and Woolworths purchasing and launching contactless payment technology relatively early, with other businesses following suit.
Having only two or three major players in industries such as supermarkets in Australia brings with it many downsides (including less competition and often higher prices), but it can also mean that changes can spread very quickly once decisions are made. For example, we may not all be fans of self-checkout machines, but we quickly got used to them (just like we got used to contactless payments).
The Reserve Bank and many of Australia’s financial institutions have also made a relatively early commitment to creating the “New Payment Platform”, a technology that enables near-instant bank transfers through methods such as PayID.
At the same time, our reliance on cash is weaker than in countries like Japan, where long-term very low interest rates exist, cultural traditions such as “otoshidama” (giving cash in envelopes to children for the new year), an older population with less ability (or interest) in learning new payment methods, and where physical cash still holds an important place for many due to memories of the recent financial crisis.
For many countries in Asia, which have never accepted card payments as much as Australia, it made more sense to switch from cash to QR payments. It’s an easier transition than forcing millions of small store owners to invest in a terminal to process card payments. Some continue to only accept cash, but most in Japan now accept PayPay as well.
By the time QR code payments became commonplace, Australia already had card processing technology in place in most businesses. And many Australian customers now have the muscle memory and expectation to tap to pay instantly.
Aussies may not be happy with the small surcharge that takes our morning coffee from $6 to $6.10, but we still seem to prefer it to having to deal with cash.
This week the Central Bank announced it would change the rules. It was stated that the additional fee applied to debit and credit card transactions should end by October.
The bank found that surcharging was a way to encourage consumers to use cheaper payment methods, but that it had become difficult to avoid, the rules were complex and confusing, and surcharges were often not properly disclosed.
Some business groups argue that banning surcharges would mean that the cost businesses pay to process card payments would reduce their profits or be passed on to customers through higher prices.
But the Federal Reserve thinks it will save customers about $1.6 billion in additional fees each year. The truth probably lies somewhere in between. Some businesses will bear the costs, while others will grit their teeth and cover the cost themselves.
The bank also pushed for a better deal for businesses. This will reduce maximum interchange fees (the cost that the merchant’s payment service provider pays to the customer’s bank when a card is used) for debit and credit transactions.
Of course, this means that banks that will lose money may raise the prices of some of their other products and cancel some benefits to customers to make up for the loss.
But there will also be more transparency when it comes to the fees companies like Mastercard and Visa charge businesses to process payments, making it easier for small businesses, especially those with less bargaining power, to choose the best value deal.
There are actually cheaper ways to pay via PayID or QR codes. And if these options had emerged 20 years ago, there’s a good chance Australia would have adopted them. Problem? We are now too accustomed to the convenience of tap-and-go, businesses have already invested in the technology, and there is not enough incentive for widespread adoption of QR code-based payments.
Woolworths, for example, introduced a way to pay and collect reward points by scanning a QR code in 2022. But how many Australians regularly use this as their default payment method? Even for a giant like Woolworths, it’s difficult to get customers to change their habits when a more convenient option is available.
It probably didn’t help either that major supermarkets tend to cover the cost of card payments themselves (so you never pay extra fees when you shop). There was no real financial gain for customers in switching to Woolworths’ QR code system.
QR code-based payments may have become widespread in countries like Japan, but we have little chance of adopting it. While the Reserve Bank’s ban on surcharges will help reduce the cost of card payments in Australia, we will likely experience higher prices in other ways.
It is also possible that we, as customers, think less about how much we pay, that is, what we pay. The anger we feel when we see an additional charge for our morning coffee will end, but we must remember that convenience comes at a price. We will now rely more on businesses or the government to increase their appetite and develop and adopt cheaper ways to pay.
While the QR code system offers a cheap and easy alternative for Japanese businesses reluctant to accept cards, it is a more cumbersome way to pay and one that tourists are largely excluded from.
Luckily for me (and my excessive appetite), the giant rice cracker store I came across in Osaka (which only accepted cash or PayPay) was happy to watch me rummage around for cash. Other customers? Less.
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Millie Muroi is the economics writer for The Sydney Morning Herald and The Age. He was previously an economics correspondent for the Canberra Press Gallery and a banking writer in Sydney.Connect with: X or email.
