There's a big chance the buck could stop with business owners, adding more to struggling Australians plate at a time when money is already extremely tight
Australian Restaurant and Cafe Association chief executive Wes Lambert told Yahoo Finance it's especially concerning for the hospitality industry which has faced record closures due to soaring costs.
"The hospitality industry is deathly afraid of the debit surcharge ban," he said.
"For decades they've been able to pass that fee on to consumers, but they don't have enough profit in order to absorb that 1 to 2 per cent in merchant fees," he said.
How the surcharge ban could impact small businesses
Dan Dick runs four cafes across Melbourne and told Yahoo Finance it already costs him $25,000 to accept card payments in terms of merchant fees and ongoing software costs.
He estimated he has around 600 people come through his cafes every day.
Let's assume they all bought a $5 coffee and went on with their morning.
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At the moment, each person would cop a surcharge of around 5 cents if they paid with a debit card under a 1 per cent surcharge.
Dick would have to shoulder all of those 5 cent charges if the government's ban went ahead.
With his foot traffic, that would be around $30 per day or around $10,950 for the year.
Dick told Yahoo Finance he would be forced to build that cost into his prices.
"It’s pretty unfair that they target small business on the behalf of consumers instead of the financial institutions that enact the fees in the first place," he said.
"The issue for me is that surcharges were a really convenient way to break down the price structure transparently to show consumers that not all of what they pay is going through to the owner."
Dan Dick said banning surcharges for customers would be unfair on small businesses. (Source: Supplied)
Strathmore Hotel owner David Basheer said he passes on around $140,000 worth of surcharges to customers per year.
He told the Australian Financial Review that he would do the same as Dick to keep the doors open and the lights on.
“No business our size can wear that, our margins are far tighter than they were three or four years ago,” he said.
“If we can’t have cost recovery through surcharges, then we have to look at other ways."
ANZ said there needs to be a “uniform approach” and called for a review across all forms of surcharging, including credit, debit, and buy-now-pay-later.
The Big Four banks are all split on how surcharges should operate. (Source: AAP)
Visa and Mastercard support a ban on both debit and credit surcharges.
Interestingly, a poll of more than 1,500 Yahoo Finance readers found 75 per cent felt the banks should be the ones to cop the surcharges, rather than small businesses.
Lambert said that would never happen and expressed doubt over the RBA and government's ability to crack down on how much small businesses have to pay to accept card payments.
If businesses need to foot these significant costs, they will be forced to absorb it into prices or take the hit.
"Small businesses will be demonised because they're the ones that have to do the RBA's dirty work," he said.
"They're the ones that have to comply with laws and regulations."
Aussies' love of going out set to cost businesses
According to LightspeedHQ, the average Australian will eat or drink out around 61 times per year, which is just over once a week.
There are more than 20.7 million adult Aussies, according to the latest census data, meaning hospitality venues are taking roughly 1.26 billion payments every year.
Card payments are the overwhelming favourite these days compared to cash (87 per cent vs 13 per cent), so small businesses could be on the hook for a lot of money if this ban goes through.
"Ultimately, those fees will be passed on to consumers in prices that are higher than the 5 cents that you would normally pay for a cup of coffee," Lambert told Yahoo Finance.
"The potential surcharge ban is actually going to turn into an inflationary pressure for menu prices.
"So it will be at least 5-10 cents for a cup of coffee, but more likely, given other costs of doing business pressures, it will be 20 cents or 50 cents, or even higher."
He, along with other industry leaders, will be consulting with the government this week on how the ban should look if it gets implemented.
Businesses usually set very clear rules around card payment surcharges. (Source: Facebook/Reddit)
How does surcharging work?
There are three main players in the surcharge game: customers, merchants and those who charge businesses to provide digital payments, like banks, a tap-and-go reader service such as Square, or Visa and Mastercard.
Merchant fees can be broken down into interchange fees, which are paid to the bank, scheme fees which go to companies like Visa and Mastercard, and the acquirer margin, which is paid to the bank or provider that supplied the physical payment machine.
Small businesses are only allowed to pass on to consumers what it costs them to accept the card payment.
The consumer watchdog said businesses pulling in less than $1 million per year would be charged between 0.85 per cent to 2 per cent for a debit card purchase.
For that $5 coffee, that's between 4 to 10 cents.
According to the Independent Payments Forum, around $1.3 billion in merchant fees are paid each year by small businesses.
