By Elisa Barwick

The Reserve Bank of Australia (RBA) is currently conducting a Review of Merchant Card Payment Costs and Surcharging, allegedly to consider whether regulatory settings for surcharging can be adjusted to relieve cost-of-living pressures. But, yet again, rather than conducting its duties as a regulator, the RBA is covering for the big end of town.

Surcharges have been increasing and are being imposed on a broader range of card services than ever, cutting into the dwindling profits of small businesses and the moth-eaten pockets of their customers, while the banks rake in huge profits. According to RBA figures Australian businesses pay $6.4 billion per year to banks, payments platforms and card companies, for the privilege of transacting digitally using eftpos, credit or debit cards. This expense is passed on to customers while the costless alternative—cash—is increasingly removed as an option.

Cash has never incurred a surcharge, and while it has been floated—including by RBA Governor Michele Bullock in a Sydney speech on Modernising Australia’s Payments System in December 2023—the unpopularity of such a suggestion is well known.

Restoring cash access is one solution that the RBA’s Issues Paper, which presented matters for consultation during the ongoing review, did not canvass. That would require pulling the banks into line, making them restore banking services in numerous shuttered locations across the nation to ensure cash as a payment option. This needs to be done anyway, to establish redundancy in the all-too-frequent event of network and technology outages, or natural disasters. The RBA does admit that “Consumers are less able to avoid surcharges, because fewer consumers use or carry cash”, or because they shop online.

The accepted orthodoxy today is that cash is more expensive to provide than digital payment systems; yet customers are being charged through the nose for the convenience of waving a card or phone at a machine. They are charged a percentage of their transaction for the privilege—charges which increase to very significant figures on high-cost items, which is hard to justify.

A submission to the RBA review by the Australian Competition and Consumer Commission stated that “reports [i.e. official complaints] to the ACCC about payment surcharging and other add-on costs have been recently trending upwards”.

Among the problems acknowledged by the RBA are: excessive surcharges, where in some cases payment service providers (PSPs) are bundling various service charges (for the cost of terminals, etc.) into their card fees, which are then passed onto consumers; the lack of disclosure of surcharges, where it is not clear to consumers if they will be charged or by what amount, ahead of time; and increasingly, that merchants are indiscriminately billing retailers for payments services across the board, regardless of whether they use a credit or debit card, which were once charged at different rates.

Note that the ACCC’s page on surcharges, which lays out the ban on excessive surcharges (charging more than the fee being compensated or charging for some other associated cost) explicitly states that if “payment without a surcharge isn’t an option”—which is often the case if the business does not accept cash—all displayed product prices “must include the minimum surcharge payable”. And pigs might fly.

RBA admits that small businesses are bearing the brunt of the surcharge rort, paying “around three times” the charges of large merchants, being unable to negotiate favourable terms like big players. For simplicity, many merchants are driven into “single-rate plans” which charge debit, credit and charge cards at the same rate, which is bad for customers.

Brad Kelly, managing director of payments consultancy Payment Services, told ABC on 4 March 2024 that payment providers were “gouging” merchants by charging a flat surcharge across all transactions when different payment types cost varying amounts to process. Eftpos transactions, for instance, are far cheaper than Visa and Mastercard.

Even the Australian Banking Association had to admit in its submission that “it has become clear that the current surcharging framework is no longer fit-for-purpose”.

The RBA’s failed ‘fix’

The RBA was forced to take action when it became widely known that payment terminals were automatically routing charges to the most expensive option for customers—but most lucrative for card providers—by defaulting to credit over debit facilities on card payments. However, the RBA’s introduction of “least cost routing” (LCR) was not a “regulation” but an “expectation” (i.e. voluntary); was not available at all payment terminals; and thus far only applies to transactions made with cards, not mobile phones or online purchases. Bullock threatened to mandate LCR by mid-2024 if the take up was not sufficient, but that did not happen.

Despite it not being mandated, after implementation of the LCR, Luke Achterstraat, CEO of the Council of Small Business Organisations Australia (COSBOA), told ABC: “Some of the feedback we’ve had from a small business in Tasmania was over $100,000 in a year that they’ve saved.” That’s 100 grand in costs that wasn’t passed on to their customers!

The submission by Independent Payments Forum Australia (IPF), written by its co-founder Warwick Ponder with the aforementioned Brad Kelly, noted that the RBA’s handling of LCR was a “a complete failure of self-regulation”. Actual regulation is now needed, they wrote.

The IPF, which represents over 100,000 retail shop fronts, restaurants, supermarkets and stores, identified a ban on surcharges recommended by some as punishing small businesses for a problem created by big banks and multinational corporations. The removal of surcharges, stated the submission, is “an existential risk to many small businesses because surcharging is used to defray operating costs, namely payments acceptance costs”. Instead, argues IPF, “the lost revenue must be absorbed by large businesses, PSPs, card schemes and banks”.

“Banks have privileged position in our economy, essentially supported by taxpayers through subsidies such as feefree deposit insurance and restricted entry. Large retailers have scale and market power. Card schemes typically have massive scale and oligopoly power exercised on a global scale. Because of these reasons and the sheer complexity of payments systems which undermines informed choice and efficient markets, the payments industry is vulnerable to market failure.

“Because of this failure, we need and rely on the RBA to step in an ensure those with the least market and bargaining power get a fair deal.”

IPF offered detailed proposals for reform, proposing set charges, caps on charges, caps on margins of PSPs, increased transparency, closure of loopholes in regulations and unfair sweetheart deals for big retailers.

The deliberate push to end cash

A number of submitters highlighted how the surcharge disaster has resulted from the incessant drive to go cashless. “The move to electronic payments in Australia has been led by ‘cash replacement’ positioning from the payments industry”, IPF wrote. This has been a deliberate, aggressive and successful marketing strategy, backed up by the big banks which see digital services “as a more cost-effective way [for them] to provide their customers with access to their own money than cash”. CBA CEO Matt Comyn admitted as much to the House of Reps Standing Committee on Economics in 2024, saying that electronic payments were a far more costeffective way for banks to distribute customer funds.

The shift to digital payments was driven by bank branch closures, reduction of ATM numbers, reduction of cash-out limits and increases to costs of cash handling, said IPF. “The industry has deliberately moved Australian merchants and consumers to electronic payments to access their own money as a substitute for cash”.

As IPF makes clear, “it is disingenuous of these same industry participants to now use statistics about the cost of cash in 2024 to defend their high card fees”

In this context, “debit cards are the new cash and fees should be low”, said IPF. “Banks now have an obligation to provide these services at the lowest possible price as an important part of their social licence”. (Emphasis added.)

National Seniors, the leading advocacy organisation for older Australians, receives numerous complaints from members about lack of transparency regarding surcharges. In its submission it stated that “Maintaining cash as accessible and accepted is an important part of the financial system, both as a payment method and store of value. Cash is important to seniors for a range of reasons, including reliability, budgeting, and security.” Seniors, like many people on low fixed incomes, are particularly affected by surcharges. “These charges appear to be increasing, unavoidable, and under-disclosed, leading to significant consumer anger at a time that cost-of-living pressures are high.”

It recommends that business should be able to pass on costs but not under the “uncompetitive, unfair, and unwieldy” system of surcharges. “Surcharges are a cost of doing business that should be incorporated into the purchase price of goods and services rather than as a separate charge that is applied at the end of a purchase.”

While surcharges on all major credit and debit cards in the European Union and UK have been banned, the Restaurant and Catering Industry Association of Australia, representative of a large category of Australian business, insists that “businesses should be enabled to pass on expenses, specifically that merchant fees and surcharges be allowed to be on charged”.

Consumer advocacy group Choice has demanded that along with caps on charges, surcharges on debit cards be banned, as they are now the equivalent of cash. “Paying for goods and services is essential to function in society. If people are trying to pay for something with their own money (whether it be cash or debit card), we think it is reasonable for them to expect they would not be charged for doing so, or that any charge is built into the advertised price.”

Banning debit card surcharges may also help reallocate some of the financial benefit of digitisation to consumers, said the Choice submission, because while it has presented great savings to the banking and payments sector, consumers do not see any concrete financial benefit other than saving a couple of moments by using a card. At the same time, it adds, the RBA should pre-emptively push for a ban on any surcharge to cash payments.

Surveys conducted by Choice revealed “the perception that surcharges were becoming unavoidable because cash is becoming increasingly difficult to access”; “frustration that banks would profit from an increase in card payments while also closing branches and ATMs, which made cash harder to come by and contributed to the decline in cash use”; and, “that cash was the best answer to avoid a surcharge”. (Below.)

Choice survey respondents back cash

• “I think it is ridiculous that the banks charge surcharges for use of bank cards when they have removed ATMs and bank branches where cash was once available. Total rip-off! And lack of service. Why do we need to pay to use our own money?”

• “I don’t like it when cash is not accepted and you have no choice but to pay via card and have to accept any charges. I always try to insert my card where possible and I thought this stopped me being charged fees, but it is still happening even with savings accounts.”

• “I am a single parent receiving a government pension. I have had my bank account put into the red due to bank charges, have had my account balance too low to pay direct debits and then been charged a dishonour fee on top of excessive transaction fees.”

Australian Alert Service, 27 February 2025