The federal government says it is willing to ban debit card surcharges, without heaping financial pressure on the small businesses that currently pass card payment processing costs on to consumers.
On Tuesday, Prime Minister Anthony Albanese announced the government is prepared to ban surcharges from January 1, 2026.
Consumers will benefit if businesses are forbidden from tacking extra costs onto debit card transactions, says Albanese.
The government’s “number one priority is to ease the cost of living for households and businesses, and this is another step to protect Australians,” Albanese claims in a press release.
Labor will also commit an extra $2.1 million to the Australian Competition and Consumer Commission (ACCC) to help the watchdog crackdown on “excessive” surcharging.
At the same time, the Reserve Bank of Australia (RBA), which regulates the payments system, has launched its new review into card payment fees and merchant surcharging.
Small businesses pay fees each time they accept a debit card payment.
The banks, the EFTPOS system, card networks like Mastercard or Visa, and payment platforms like Square, Zeller, or Tyro can all take a share of those fees.
The RBA estimates the average cost of accepting an EFTPOS debit payment is 0.5% of transaction value, while Mastercard and Visa debit transactions may cost 0.5% and 1% to process.
But small businesses generally face higher card acceptance costs than their larger competitors, which can negotiate volume discounts with their payments partners.
As it stands, businesses are allowed to surcharge customers for the cost of accepting those debit card payments.
Many retailers, cafes, and restaurants choose to do so, helping them spread the cost of payment acceptance in a tough trading environment.
If surcharging is banned without any change to the underlying fees, small businesses would be forced to wear the cost of debit payments, or pass the cost on to consumers through increased retail pricing.
Industry figures argue that banning debit payment surcharges without reducing the underlying costs paid by small businesses could be damaging to traders and the economy.
Wes Lambert is the CEO of the Australian Restaurant & Cafe Association, an industry group representing hospitality businesses nationwide.
Speaking to SmartCompany, Lambert says any move to ban surcharging should come with reduced card acceptance fees for “mom and pop” businesses.
“We can’t have the balance of the scales go back to the banks, against small business, to save consumers,” he says.
“What we don’t want is this to just end up as a menu price increase, which then goes into inflation.”
Lambert also warns against unintended consequences of the proposed ban, which could see the banks and payments providers level higher monthly fees on small businesses in lieu of transaction fees.
“If the government and the RBA and the ACCC want to ensure that this is done fairly, they will force the banks to be fair in their charging of merchant fees to big and small business,” he says.
“So we need to rid Australia up big businesses paying little to nothing for the card transactions to the banks, and then small businesses having to pay the difference for bank profits.”
The government is trying to alleviate those concerns.
It suggests the RBA review could reform how the banks, card networks, and payment platforms extract card payment fees, giving small businesses more breathing room.
“Consumers shouldn’t be punished for using cards or digital payments, and at the same time, small businesses shouldn’t have to pay hefty fees just to get paid themselves,” says Treasurer Jim Chalmers.
“We’re prepared to ban debit card surcharges, subject to further work by the Reserve Bank and safeguards to ensure small businesses and consumers can both benefit from lower costs.”
An issues paper for the RBA review, released Tuesday, confirms the central bank will consider the case for regulatory intervention “to narrow the gap between strategic merchant rates and the rates paid by small businesses”.
ARCA plans to participate in the RBA review, which will remain open for submissions until December 3, 2024.
Retailers, restaurants, and banks are not the are not the only businesses expected to have their say.
New-school payments providers can package multiple types of payment under one general transaction fee, which can be higher than the cost of accepting debit card payments alone.
Katie Wilson, head of policy at FinTech Australia, says an outright surcharging ban could harm payments providers offering innovative services and hardware to the business sector.
“Any proposed policy reform needs to be carefully considered to ensure it supports competition and innovation in payments,” Wilson says in a press release.
“Without this, small businesses lose the right to choose how to allocate their costs and we risk jobs and innovation in the fintech industry, to consumers’ ultimate detriment.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
