SMEs fight RBA plan to outlaw card surcharges

Australian small and medium businesses are stepping up pressure on the Reserve Bank of Australia over its proposal for a blanket ban on card surcharges, citing a landmark settlement in the United States as evidence that regulators elsewhere are moving in the opposite direction.

The settlement in the US follows two decades of litigation involving Visa and Mastercard. It gives American merchants greater freedom to surcharge high-cost premium and rewards credit cards and to refuse some card categories.

Business groups in Australia say the contrast with the RBA’s draft position is stark. They argue that card fees are a significant element of their payment costs and that a full ban on surcharging would remove one of the few tools they use to manage those costs.

The RBA is consulting on reforms that include a prohibition on surcharges for debit and credit card payments. The central bank has argued that surcharges can surprise consumers at the point of sale and can reduce price transparency.

SME groups claim the US outcome shows regulators can target expensive payment instruments rather than merchants as a whole. They say the settlement recognises that premium cards carry higher interchange fees and that merchants need flexibility in how they treat such cards.

Under the US deal, merchants can decide whether they will accept cards in particular categories. These include premium consumer cards that attract higher swipe fees. Merchants also gain more scope to add surcharges on those high-cost cards.

Industry bodies in Australia say this targeted approach is fairer than the RBA’s proposed blanket model. Their view is that users of expensive payment methods should face the associated costs directly, while lower-cost options should remain surcharge-free.

Several submissions to the RBA have argued that any ban should apply only to low-cost debit cards. They say this would preserve a free or low-fee way to pay for consumers, while leaving merchants able to recover costs on more expensive credit cards.

Business lobby groups note that such a limited ban reflects commitments made before the last federal election. They point to statements by Prime Minister Anthony Albanese and Treasurer Jim Chalmers that singled out debit card surcharges rather than credit cards.

SMEs warn that a full prohibition would have wider economic effects. They say it would change how costs are distributed between payment methods and between different customer groups.

Small business groups use the term “waterbed effect” to describe the risk. They say that if they cannot show payment fees separately, then they will lift base prices or add other charges.

“A complete surcharge ban would likely result in a shift of these costs to higher base prices or increased service fees, amounting to an across-the-board cost of living increase with all customers paying more regardless of how they choose to pay,” said the Australian Travel Industry Association (ATIA) in their submission to the RBA.

The Australian Hotels Association has also warned of a shift in who bears payment costs.

“Nothing comes for free - but under the current RBA proposal, credit card users will be getting something for nothing - and cash users and debit card users will be paying for it,” said the Australian Hotels Association (AHA).

Industry groups say the experience of other regions supports their concern. They point to Europe’s ban on surcharging as an example of costs moving into general prices.

The European Court of Auditors reviewed the impact of the EU ban. It found that the reform shifted costs from visible surcharges into higher retail prices, rather than reducing the overall burden on consumers.

Opponents of the RBA’s plan say the US, New Zealand, Canada, and the EU now form a clear set of case studies. They argue that these examples show the risks of wide bans and the benefits of more targeted systems.

In New Zealand, rules curb surcharges on some low-value in-store transactions. The model seeks to address situations in which customers face extra fees on small purchases that exceed the advertised price.

The New Zealand framework still allows surcharges on other channels. It also leaves merchants scope to reflect costs where customers have clearer sight of total prices.

Canada uses a different set of rules. Merchants there can levy surcharges within set caps and must disclose them clearly.

Australian SMEs see this Canadian approach as a way to preserve price signals between payment types. They say transparent surcharges encourage consumers to shift towards lower-cost options, including debit cards and bank transfer methods.

Several groups also call for mandated Dynamic Least Cost Routing on all dual-network debit card transactions. This routing sends transactions across the cheaper of two networks available on the same physical card.

They say such routing would reduce costs at source. They argue that merchants would then have less need to use surcharges but should still retain the right to do so for high-cost cards.

SMEs warn that their margins cannot absorb higher payment costs if surcharges disappear. Many operate in sectors with regulated prices, fixed commissions, or intense competition on advertised rates.

Travel agents, hotels, hospitality venues, and online merchants say they rely on surcharges as a direct pass-through of card fees. They argue that removal of that line item would damage business viability or service levels.

The debate has also taken on a cost-of-living dimension. Business groups say that if surcharges vanish from specific users’ bills, then broader customer bases will face higher prices instead.

SME organisations claim that the outcome will be especially harsh for cash users and debit card users. They say these customers will cross-subsidise rewards cardholders, who often earn points or cashback from schemes funded partly by merchant fees.

The AHA has attempted to quantify the effect of the proposed changes.

“In net terms, those businesses currently surcharging will be out of pocket by more than $1 billion,” said the Australian Hotels Association (AHA) in its submission.

The RBA is expected to review submissions from industry groups and consumer advocates before finalising its stance on surcharging and routing rules.