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Demands to keep multi-million dollar surcharge 'rort' alive in Australia: 'Lumber us all'

Surcharges for digital payments could be banned in Australia, with

Cash Welcome founder Jason Bryce next to a receipt
Cash Welcome founder Jason Bryce fears banning card surcharges will end up raising prices for everyone. (Source: Instagram)

A cash advocate has argued banning surcharges on card payments will unfairly impact those who use physical currency. Jason Bryce described cash as the "traditional surcharge-free option" for Australian consumers.

If a ban is imposed, like in the US, Canada, or UK, businesses will be forced to absorb the costs into their daily operations, like they would with wages, rent or energy. Bryce argued this "threatens to lumber all of us with additional hidden fees and charges".

Swinburne University’s Professor Steve Worthington told Yahoo Finance this is exactly how the cost of using cash has been distributed among us as more and more Australians opt for digital payments.

The Reserve Bank of Australia (RBA) introduced surcharging back in 2003 because it was worried about Aussies relying too much on credit cards.

It was hoped that charging Aussies more to use credit would change their spending behaviour and lower the cost to the merchant for accepting debit cards.

However, this was also at a time when people relied far more heavily on cash and cheques as well as debit and credit cards.

Twenty-one years on, the RBA's bet has technically paid off as debit spending is higher than credit, according to Worthington.

But now Aussies are far more reliant on cards, be they physical or digital, and they're copping surcharges almost every time they pay for something.

NAB boss Andrew Irvine believes surcharging, in the way it was designed two decades ago, isn't applicable now.

"It's possible that surcharging was warranted over 20 years ago, but I think it behooves us to ask whether it still serves its purpose," the NAB boss said. "It just adds to confusion. It means I don't know what the price of a good is that I'm buying and I don't like it."

Professor Worthington told Yahoo Finance some businesses have also been whacking on surcharges far higher than what is necessary to cover the cost of accepting the card transaction.

"I think what [the RBA has] done is opened the floodgates to people just trying to rort the system," he said. "It's just another way of gouging us."

The RBA is currently reviewing the state of surcharging in Australia and the central bank could end up banning them altogether.

Consumers would be able to be more conscious of their spending as the price of the product would be the amount that comes up in their bank statements.

While it might only be a few cents here and there per transaction, it can add up over the course of the year.

There's debate about how much surcharging has cost Australians, with some experts putting it as low as $400 million and as high as $4 billion. A recent analysis of RBA data by the ABC found card surcharges were costing Australians closer to $960 million a year.

Irvine told a parliamentary hearing last month that surcharging creates a "lack of transparency and lack of consistency" when you pay for something.

person tapping their card onto a machine
Tapping your card might not seem expensive, but it can certainly add up. (Source: Getty) (Jacob Wackerhausen via Getty Images)

Westpac chief executive Peter King said accepting card payments, especially in this age, is the "cost of doing business" and believes the surcharge should be absorbed into the base price.

"All the other costs are blended into the $5 price [of a coffee]. Why should one payment mechanism be treated differently?" he told the same hearing.

But Bryce believes that's unfair because he's a cash user, even though the cost of physical money for small businesses was recently found to be twice as high as cards.

King said banning surcharges would bring every small business into line and ensure Aussies aren't forced to pay more than they need.

"What we have is some merchants are charging fees above their cost, as there is no enforcement of the rules,” he declared.

“When you are talking 8 cents on a transaction, is it worth the confusion of what is going on?"

While the Big Four banking CEO believes card payments should be part of any business cost, it's not minimal.

Home Or Away Mechanical in Queensland told Yahoo Finance they pay upwards of $5,000 a year on bank costs to accept cards.

But there's a three-tiered system embedded in card surcharging and the RBA is looking at whether it could introduce new measures to bring costs down for businesses like Home Or Away Mechanical.

If you pay with card and choose the EFTPOS network, the surcharge 0.5 per cent or less.

If you use Visa and Mastercard debit networks, it can be between 0.5 to 1.0 per cent and credit can be 1.0 to 1.5 per cent. But there are some payment systems that charge almost 2 per cent per transaction.

Least-cost routing (LCR) is a system that allows customers and merchants to be charged the lowest amount when using debit cards. It is not available for credit cards.

In the past, if you inserted your card and selected the CHQ or SAV buttons, it would be an EFTPOS surcharge. If you selected the CR button (which technically stands for credit, but also includes Visa and Mastercard debit) you'd get a surcharge of between 0.5 to 1.0 per cent.

People inserting their cards into a machine
Back in the good old days, Aussies had to insert their debit cards and they could choose the lowest form of surcharging. (Source: Getty)

With contactless payments like tap and go as well as smartphones and smartwatches, the surcharge is usually automatically directed to the Visa and Mastercard debit instead of EFTPOS.

This is where LCR kicks in and merchants have the ability to send transactions to the cheapest available surcharging network.

The RBA applied a lot of pressure on banks and payment providers to offer LCR for contactless debit card transactions. By mid-2019, many had introduced some form of LCR functionality, but the RBA said the merchant take-up of these new systems was low.

But as of June 2024, 70 per cent of large providers had LCR enabled for in-person transactions. For online transactions, that number is at 50 per cent.

"While progress has been made over the past year, some providers still have much more work to do," the RBA said.

As part of its review into surcharging the RBA added that "further regulatory intervention" for LCR could be implemented if it's "appropriate", which could give merchants some much-needed relief.

"The Board also expects providers, including payment gateways, to accelerate progress on making LCR widely available for online transactions and enabling LCR for merchants that could benefit from it," the RBA said last month.

"The Board continues to expect the industry to deliver LCR functionality for mobile-wallet transactions by the end of 2024."

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