Paying card surcharges: here’s what we know
Surcharging on digital payments makes cash your best friend.
NSA: Keep Cash and avoid surcharges
National Seniors CEO, Chris Grice, says a sure way to avoid surcharges at the point of sale and save money is to pay by cash.
“While the regulators work on a fairer digital payments system, the best way to pay less for the coffee or meal is to hand over cash. Most businesses love cash as it helps keep their costs down too.”
However, there is a trend towards businesses going cashless.
“Seniors, in particular, are affected by this new step,” Mr Grice said.
That’s why National Seniors is calling for cash to be accessible and accepted, to ensure seniors are not digitally excluded.
"The move towards a ‘cashless society’ is disproportionately impacting seniors who struggle with technology and online banking, highlighting concerns about digital exclusion,” Mr Grice said.
He said everyone benefits from keeping cash. “It’s a sure way to pay less and ensure financial fairness. Everyone should have the choice to pay how they want and save money during these inflationary times.”
For more information:
Previous Connect stories on digital payments, surcharges, what you should expect to pay, and how to save are available here and here.
For information about how the Reserve Bank of Australia (RBA) is regulating digital payment systems, click here and here.
To find out more about our Keep Cash campaign, click here.
There are 75% of us who use digital payments – credit and debit cards. For the convenience, we’re paying $4 billion a year just to use our own money.
Every time you tap your card, banks and card providers take a cut. It’s led to claims, even in Parliament, that it is unfair and must stop.
Until a few years ago, paying by card did not incur a visible fee and was just a part of the cost of doing business. No one seems sure when and why that changed.
Unless you use cash, you can expect a 1-2% surcharge when buying a coffee or a restaurant meal.
Consumers already hit by rising prices and cost-of-living pressures face a double whammy as more retailers not only impose a surcharge but also go cashless.
Unlike ordinary business costs, such as keeping fridges cold or even accepting cash, businesses are allowed to pass their digital payment costs on to customers because of a Reserve Bank of Australia rule, which is now under review.
The practice is outlawed in the UK, Europe, and North America.
That’s the questions federal MP Jerome Laxale recently asked Commonwealth Bank boss Matt Comyn before the House Economics Committee. He was sensing a growing popular revolt against the practice, which has become more acute as the cost of living increases.
Businesses are also feeling the pinch, and payment costs, if not passed on, are hurting margins as more transactions shift away from cash.
However, after 20 minutes of listening to Mr Comyn most of us, including Mr Laxale, were none the wiser. A relevant piece of information that did emerge was that handling cash also has costs, which traditionally have been embedded in the price of goods and services. Banks have never charged us, as least directly, for using cash.
Striking a more customer-friendly tone, National Australia Bank (NAB) chief executive, Andrew Irvine, told Mr Laxale it was “outrageous” he was forced to pay $5.50 for a $5 coffee in Sydney. At NAB’s head office in Melbourne’s Docklands, a $4.50 flat white costs $4.57.
Westpac CEO Peter King said, “It is confusing customers. We really have to think about whether surcharging is worth it because I’m not sure if it’s driving the policy intent … There’s no other cost in a business that people get to surcharge.”
In an article on surcharging, the Australian Financial Review (AFR) reported that payment revenue earned from merchants is shared between:
- Banks that issue cards to the consumer (interchange fees, which are about 30% of the direct cost)
- Network providers Visa, Mastercard, and Eftpos (scheme fees, about 20%)
- The banks that supply the physical terminal to the retailer (the acquirer margin, representing about half the cost).
Lately, banks and financial technology companies (fintechs) have introduced fixed pricing plans in an attempt to reduce payment fee complexity for business customers.
These plans let a merchant pay the same cost irrespective of what card the customer uses. But this has resulted in more surcharging of debit cards, another of Mr Laxale’s frustrations.
The RBA estimates that the average wholesale cost of processing an Eftpos payment, which uses a domestic network, is less than 0.5%.
Visa and Mastercard debit networks costs are between 0.5% and 1%, while their credit network is between 1% and 1.5%. American Express charges 2%.
The fees help maintain the networks, security, and services and compensate merchants for fraud, and refunding customers if goods are not delivered.
However, the question remains why are businesses now applying surcharges where once it was included in the cost of doing business? And why are we paying the same surcharge for debit/Eftpos and credit transactions?
The reasons include new pricing structures that have come in with the entry of new players in the card merchant market. Cafes and restaurants are being lured off bank terminals, which is forcing the major banks to follow.
This has resulted in many small businesses being charged more than the wholesale cost of Eftpos transactions, which are supposed to be cheaper.
Older people are using their credit cards more to benefit from linked loyalty and rewards programs. If they use the card more, they earn more points towards the next holiday.
However, younger generations are using debit cards more, which has led to claims that older people are benefiting from their rewards at the expense of their kids.
Warwick Ponder, from the Independent Payments Forum, told the AFR “that means the people who can least afford it, like Millennials, Gen Zs and low-income earners, are paying for credit risk and services they don’t get”.
Credit cards are more expensive because banks buy rewards points from airlines to use as sweeteners, with the objective of facilitating more transactions to earn higher interest from borrowers.
We can only hope that a review into surcharging being undertaken by the (RBA) – including why businesses are not choosing the least-cost digital payment options – will provide clarity into what is a very opaque financial area that is impacting all our hip pockets.
