Should Credit Card Surcharges Be Banned?

Feb 12, 2025 | Small Business

Ban on Credit Card Surcharges a Reality?

Will Credit Card Surcharges Be Banned?

Article authored by David Apps, Director, TSP Accountants & Business Advisors. Connect with David on Linkedin Here

As we look at the evolving landscape of payment systems in Australia, I’ve been closely following the debate around credit card surcharges. With the UK banning these surcharges since 2018 and similar restrictions in Europe, many are asking why Australia hasn’t followed suit. Let me break down the complexity of this issue.

In October 2024, the Reserve Bank of Australia (RBA) initiated a review that is crucial for our financial ecosystem. They’re examining whether our current regulatory frameworks are still fit for purpose, particularly given the rapid pace of technological change. From my perspective, this review is fundamentally about reducing costs for both merchants and consumers.

What I find particularly concerning is the disparity in fees between small and large businesses. Over the recent years, I’ve seen how small merchants typically pay around three times more in transaction fees compared to larger merchants. This isn’t just a minor inconvenience – for some small businesses, these costs can range from less than 1% to well over 2% of transaction values.

The landscape of payments has transformed dramatically before our eyes. Consider this: contactless payments now account for 95% of in-person card transactions, compared to less than 8% in 2010. I’ve watched mobile wallet usage surge from just 1% of point-of-sale payments in 2016 to 44% in October 2024. It’s remarkable to see how Buy Now, Pay Later services, barely known eight years ago, are now used by nearly a third of Australians.

The government’s announcement to ban debit card surcharges from January 1, 2026 (subject to the RBA review) marks a significant shift in policy direction. However, I believe businesses need to carefully consider their options. Those currently charging surcharges will face a choice: either absorb the cost of merchant fees or increase their prices.

Looking at the current regulations, businesses can only charge surcharges that reflect their “reasonable cost of accepting card payments.” The RBA’s estimates provide a useful benchmark: Eftpos typically costs less than 0.5%, Visa and Mastercard debit between 0.5% and 1%, and credit cards between 1% and 1.5%.

From my perspective, while the Australian card payment fees are lower than those in the United States, there’s still room for improvement when compared to European rates. The RBA has suggested we might achieve this through capping interchange fees or introducing competition in debit card payment routing.

As we await the outcomes of the RBA review later this year, I believe we’re at a crucial junction in Australia’s payment system evolution. Whether you’re a business owner, consumer, or industry stakeholder, these changes will significantly impact how we think about and handle payment transactions in the future.

The Future of Digital Payments in Australia

Looking ahead, I see several key trends that will shape Australia’s payment landscape. Digital wallet adoption continues to accelerate, and I expect this trend to fundamentally transform how businesses operate. The integration of digital payments with business management systems isn’t just about convenience – it’s becoming essential for competitive advantage.

Small businesses, in particular, need to prepare for these changes. Through my work with various enterprises, I’ve noticed that businesses who embrace digital payment solutions often see improved cash flow management and customer satisfaction. However, the transition needs careful planning, especially regarding fee structures and payment processing systems.

The RBA’s upcoming decision will likely influence payment innovation across several sectors. We’re seeing financial technology companies developing new solutions that could help businesses better manage transaction costs. This includes smart routing systems that automatically select the lowest-cost payment pathway and integrated point-of-sale systems that provide real-time analytics on payment processing costs.

For consumers, these changes could mean more transparent pricing but potentially higher base prices as businesses adjust their models. The key question many are asking is whether the removal of surcharges will lead to a more equitable payment system or simply shift costs elsewhere in the transaction chain.

I particularly encourage business owners to start reviewing their payment acceptance costs now, rather than waiting for regulatory changes. Understanding your current transaction fee structure, customer payment preferences, and available payment processing options will be crucial for adapting to this evolving landscape.

This transformation of Australia’s payment ecosystem represents both a challenge and an opportunity. Those who prepare early and adapt strategically will be best positioned to thrive in our increasingly digital economy.

Remember, if your business charges GST on goods or services, these tax obligations extend to surcharge payments as well. It’s crucial to stay informed and prepared as we navigate these changes in our payment landscape.

If you would like to discuss your situation, please contact myself or reach out to the TSP team for friendly advice or assistance. Call 49 264155 or email admin@tspaccountants.com.au

David Apps | BCom, CA
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