Yahoo Finance Major banks push to abolish 'outrageous' charge for Aussies: '$4b nightmare'
Commonwealth Bank, Westpac and NAB executives agree that surcharging for digital payments need to be banned or regulated.
The head of National Australian Bank (NAB) has made an incredible declaration against "outrageous" surcharges forced on Australian consumers. Chief executive Andrew Irvin's attack comes as the head of Australia's biggest bank disputed that customers were paying up to $4 billion in card surcharges simply to “access their own money”.
A heated debate about surcharging has broken out over the last two days as executives faced a grilling before a parliamentary hearing into the big four banks. It's an issue clearly irritating Aussies, with a recent Yahoo Finance survey finding 95 per cent of people wanted card surcharges banned.
Irvine admitted card payment surcharges no longer made sense as the use of cash declined and digital payments rose.
He, along with other major bank executives, backed a ban on the practice, which is already outlawed in places like Europe, Canada, the United States and the United Kingdom.
"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 on Friday.
"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."
Small businesses can currently pass on the cost of a digital transaction, but there is a ban on excessive surcharging, or imposing a fee when payments with cash are not available.
That hasn't stopped businesses slapping customers with wild charges.
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A Queensland mother told Yahoo Finance she was hit with a "ridiculous" 10 per cent surcharge when she paid for her birthday lunch using a QR code.
“I would love to know how they are getting away with that... It’s just exorbitant," Alera said.
Irvine agreed additional fees of up to 10 per cent were "outrageous", noting he too had copped a charge that high while buying a coffee in Sydney.
“I don’t like the lack of transparency and lack of consistency," he said.
Westpac chief executive Peter King said rogue surcharging made the market "too complex" and also backed reform.
"What we have is some merchants are charging fees above their cost, as there is no enforcement of the rules,” King said.
“When you are talking 8 cents on a transaction, is it worth the confusion of what is going on?
“Probably not. It is a cost of doing business.
"All the other costs are blended into the $5 price [of a coffee]. Why should one payment mechanism be treated differently?”
Will surcharging be banned in Australia?
The Reserve Bank of Australia (RBA) is currently reviewing merchant costs and surcharging and it has been speculated it could ban or regulate the practice.
This could means businesses would have to to absorb the cost, potentially passing it on through pricing instead of the extra addition when a transaction is made.
“People don’t use cash any more, so everything is just getting surcharged. It’s prevalent in the retail industry, particularly hospitality,” RBA governor Michele Bullock said.
“We are going to be looking at the economic circumstances now, and whether surcharging is still fit for purpose as an instrument to improve efficiency in competition.”
On the other side of the argument, businesses under extreme cost-of-living pressure from rising wages, rent, and supply costs said absorbing the fees was driving them broke.
Home Or Away Mechanical in Queensland recently installed a notice urging customers to pay for services using cash if possible in a bid to support “hard-working people” rather than the “big banks”.
The Loganlea mechanics said it paid close to $400 per month on EFTPOS fees and associated charges.
“[We’re] just sick of the bank fees. We pay between $4,000 and $5,000 a year in bank fees for the EFTPOS machine to hire it and a percentage on every transaction,” owner Michelle Guilford told Yahoo Finance.
“As well as everything else going up in price, it's just ridiculous. We decided to put the sign up and it’s been a great success.”
Labor MP Jerome Laxale has fronted a campaign for fee-free digital payments., describing the system as a "rort".
He said businesses also shouldn't be copping the fees given the transformation of digital payments and placed the blame at the foot of banks for charging them.
“I do not begrudge small businesses for having to pass these exorbitant costs on, nor do I expect them to have to take on the cost overnight,” Laxale told Yahoo Finance.
“I question why we are all being charged fees at all. Cash is fee-free to use, so should digital.”
"The RBA currently provides fee-free bank-to-bank fund transfers in an instant.
“Be it through Osko, PayID, scanning a QR code or new rules to open up Apple or Google wallets, unlocking the potential of the New Payments Platform is the answer to this $4 billion nightmare.”
How much does surcharging cost Australians?
Commonwealth Bank of Australia (CBA) executive Matt Comyn rejected a "like-for-like" comparison between the cost of using cash and card while fronting the parliamentary hearing on Thursday.
Comyn was confronted by Laxale, who held up a $5 note and asked why a coffee would only cost $5 if he used cash but $5.08 if he used a card.
He rejected the politician's $4 billion claim, arguing that amount was “grossly exaggerated or inaccurate”.
“That number is just simply wrong … We believe that’s at least overstated by three times,” Comyn said.
He cited a recent report commissioned by Mastercard that found the cost of accepting a card payment was 1.8 per cent of the goods, while cash was more than double at 3.9 per cent.
A recent analysis of Reserve Bank of Australia (RBA) data by the ABC found card surcharges were costing Australians closer to $960.26 million a year.
Why do I have to pay a surcharge for cards and not cash?
The extra cost of using cash is impacted by a range of factors. You need to move it, secure it and store it.
RMIT associate professor of finance Dr Angel Zhong said there are also “hidden costs” of cash that businesses have to handle.
“Research shows that on average, it takes a small business in Australia 29 days per year to handle cash. So that includes everything, receiving cash, counting cash, reconciling and deposting in cash,” Zhong told Yahoo Finance.
So, why is there surcharging for digital payments and not cash?
Comyn said the extra costs of using cash were "embedded into the price" businesses charge, much like "the cost of coffee beans or milk".
And the reason digital payments weren't treated the same? The bank boss said this was how charges had been done historically in Australia, so customers simply accepted it.
“Australia, unlike Europe, allows merchant surcharging or business surcharging. They are able to surcharge the cost of the acceptance,” he said.
Comyn also said there were costs related to handling digital transactions, like the $100 million involved with sorting through the five million charges disputed each year.
The Australian Banking Association said digital fees were imposed to cover costs like processing digital payments, including the rental of the payment terminal and ensuring payments were made safely and securely.
Surcharge reform needed as cost of electronic payments fall
Comyn said the cost of accepting electronic payments had fallen by more than 30 per cent, making Australia “one of the lowest” markets in the world and cheaper than the US and Canada.
“I don’t think it’s appropriate when others describe that in terms of a rort. I don’t think that is factually correct.”
“I can assure you, there’s been a lot of downward pressure on lowering the cost of payments.
"There’s been a lot of investment in making the payments infrastructure much faster, cheaper. In this case for consumers, there are also risks associated with that.”
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