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As cash disappears, card surcharges are getting bigger

Tap-and-go is easy but consumers are being slugged for using their plastic and apps. Here’s how.

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National Seniors Australia is calling for cash to be accessible and accepted, to ensure seniors are not digitally excluded.

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Did you know Australians are losing $960.26 million a year in surcharges when they pay with their cards instead of using cash? 

The Reserve Bank of Australia (RBA) analysis shouldn’t surprise seniors who are especially sensitive to the additional charges being levied by smaller businesses such as cafes and restaurants. 

Surcharges of up to 2% are not uncommon and that can amount to paying extra hundreds of dollars over a year, just by using a credit or debit card. 

According to the RBA’s analysis – and this is especially annoying – we should be paying less for using a debit/EFTPOS card than a credit card, but merchants appear to now be charging the same percentage surcharge no matter what the card or device function used.  

As cash fades from use, some businesses are refusing to accept it and then applying the surcharge for using a card. What choice is there? 

In the United States and Europe there is no charge for using cards. In part, that’s because the UK and the European Union ban card surcharges. However, under an earlier RBA reform, Australian retailers are allowed to recoup their payment costs through surcharging their customers – as long as they are not making a profit out of it. 

Smaller businesses say they are just passing on their own payment costs because they can no longer absorb them as the cost of doing business.  

Card costs

Tips to reduce surcharges

  • Pay by cash. 

  • Ask the retailer or shop assistant if and how much they charge, and look for what is often a small sign on the shop counter with a percentage fee. When paying by card, look on the shop terminal for the words “A surcharge may apply” before clicking OK. 

  • Most debit cards are dual-network cards, meaning they have a Mastercard or Visa logo on the front and eftpos logo on the back. If you insert or swipe your card on the terminal, you can choose the cheaper eftpos network. 

  • Avoid tapping the card because the transaction will be automatically routed to the more expensive Mastercard or Visa network. 

For a business, an eftpos transaction costs an average of 30 cents for a $100 purchase, or 0.3%, while it’s an average of 0.5% for Visa and Mastercard debit transactions. 

Mastercard and Visa credit card transactions cost 0.9%, while American Express card transactions cost around 1.3%. 

The RBA sees the increase charges to consumers as a problem and has introduced an initiative to help cut card processing costs for businesses. 

It’s called least-cost routing, or LCR, which means terminals in businesses will automatically default to the lowest-cost card network to process their debit transactions. 

That should put downward pressure on payment costs, and the flow-on effect should be smaller surcharges for consumers. 

But only 64% of business terminals are enabled with LCR. The RBA has said the take-up is “disappointingly” slow. 

An ABC Business report quotes payment analysts saying the hold-up lies with the banks because they make less money out of least-cost routing. 

“They make more out of Mastercard and Visa than they can make out of eftpos,” Brad Kelly, managing director of payments consultancy Payment Services, said. 

“Simply put, there’s no incentive for them, so they all drag their feet until they’re made to.” 

'Opportunist banks’

Mr Kelly said banks and payment providers were “gouging” merchants by charging them a flat rate, but not all payment types cost the same amount to process. 

“They’re being opportunists and they’re taking advantage of a situation that we have, which is unique in Australia, which we have a very, very low-cost debit network called eftpos, which competes with Visa and Mastercard. 

“They’re taking these cheap eftpos transactions, loading them up to 1.5 or 2%, and then subsidising Visa and Mastercard and American Express. So it’s a cross-subsidy.” 

Mr Kelly said the cost to merchants and consumers of this practice was “well over a billion dollars”. 

The banking sector argues some businesses prefer a flat rate for certainty and, ultimately, it’s up to businesses to choose least-cost routing. 

Anna Bligh, the CEO of the Australian Banking Association, says “those businesses who want to reduce their fees should introduce least-cost routing. It’s available, every bank offers it." 

What banks charge

The Commonwealth Bank told the ABC that its flat rate (1.1%) was a “simplified pricing option” and was “the lowest in market”. 

ANZ Worldline said it would continue to “prioritise” LCR for its merchants, while NAB said “LCR is not always the cheapest option for every small business”. 

RBA governor Michele Bullock has threatened to mandate LCR by the middle of the year if the industry doesn’t meet the target of 80% by then. 

Related reading: RBA, ABC 


John Austin

John Austin

Policy and Communications Officer, National Seniors Australia

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