In a reversal of course, the Reserve Bank of Australia is proposing removing surcharging across all debit card and credit card payments, from July 2026.
Caps on interchange would also be lowered further, with these cuts flowing through to a mild reduction in merchant service fees.
The RBA would also mandate greater transparency in merchant service fees and card scheme fees, in a bid to promote greater competition in this space.
The Payments System Board of the RBA yesterday published its long-awaited consultation paper, a Review of Merchant Card Payment Costs and Surcharging.
The RBA is giving the industry and business six weeks to comment, before proceeding to impose any new regulations (or standards).
In its ‘preferred package of policy options’ the RBA proposes 11 reforms. Other key reforms include:
• Requiring card networks to publish their aggregate interchange fees on a quarterly basis with breakdowns by card type and form factors.
• Requiring card networks to publish their aggregate scheme fees on a quarterly basis, and to simplify scheme fees and justifying any scheme fee increases.
• Requiring acquirers to publish their average costs of acceptance for merchants on a quarterly basis, with breakdowns by merchant size and card type. This would apply to acquirers that process more than $10 billion of card transactions annually.
The RBA estimates that these reforms, on a net basis, would cost domestic card issuers $880 million.
Consumers would save $1.23 billion from the elimination of card surcharges and, on average, save one person $60 a year (which seems a low estimate).
Small merchants overall would save $190 million a year in merchant service fees, while larger merchants would incur $260 million in additional fees over a year.
The Independent Payments Forum, which represents a coalition of small business lobbies and payments professionals, responded furiously – mainly with respect to the surcharging ban.
“Today small business pays the lion’s share of more than $6.4 billion in processing fees charged by banks, PSPs and card schemes and this will not change under the RBA’s proposals,” IPF co-founder Brad Kelly said.
“The proposed regulatory options fail small businesses. Rather, they benefit big business, big banks and big offshore [card] companies.”
“This cost is ultimately borne by consumers.”
In response to the consultation paper into card fees and surcharging released today by the RBA, IPF said the options presented failed to tackle fundamental market failures that had led to small businesses paying an average 300-400% higher card fees than big businesses.
Kelly said a proposed ban on surcharging “would expose many thousands more small businesses to these fees levied by banks, Payment Service Providers (PSPs) and card schemes, leading to reduced ability to compete with big business and higher prices for all consumers, including those who use cash.”
He said banks should absorb some of these fees as their social cost of doing business, and their community obligation to provide basic card services to their customers in a less-cash economy.
“Merchant fees are unlike any other cost that a business wears because they are charged as a percentage (1%-2.2%) of total sales. I
“In some cases, we have seen fees exceeding 2.6%, This is essentially imposing a bank tax on small business.”
For a small business, fees are in the tens to hundreds of thousands of dollars a year, just to accept card payments, Kelly said.
“Many businesses such as community pharmacies, newsagents, cinemas and independent supermarkets are unable to surcharge because of regulated pricing or competitive pressure.
“These businesses are at a significant disadvantage compared to their big business counterparts, because every single transaction they make costs them significantly more to process,” Kelly said.
Over the past two quarters, Independent Payments Forum said RBA data shows that card service fees levied on merchants have increased by 20.3% for debit cards and 4.9% for credit cards.