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Surcharges on credit and debit card payments will be banned from October, the Reserve Bank has confirmed.
The ban is expected to save consumers $1.6 billion a year in unnecessary fees, as the central bank pushes ahead with a controversial reform that was fiercely opposed by small businesses when first proposed, and will likely cause a dramatic cutback in the generosity of card rewards schemes.
On Tuesday, the RBA revealed that despite fierce opposition during an extended consultation period that gathered feedback on the proposal first floated in the middle of last year, it believed merchants should no longer be able to apply surcharges on customers’ card transactions from October 1. It claimed the fees were no longer working as intended because the majority of payments were now by card, and it was difficult for consumers to avoid surcharges.
To avoid merchants baking in the cost of card payment processing into the price of goods, the RBA will also apply pressure on card issuers – largely financial institutions and “acquirers” that provide payment terminals to businesses.
The changes apply to all Mastercard and Visa cards, but not to American Express, which is regulated differently. American Express, as a three-party card scheme, does not have interchange fees because the merchant’s payment service provider and the cardholder’s issuer are the same institution.
Interchange fees, which are paid by the payment terminal provider – its acquirer – to the institution that issues the card being used, will have caps lowered. Additionally, a range of transparency measures will be enforced so that fees and charges are more visible and it is easier for small businesses to shop around for better deals.
Smaller businesses tend to pay much higher fees to process payments than larger businesses which can strike deals. The RBA estimates merchants will save $910 million in fees as a result of the changes.
The RBA said the existing system has largely meant that debit and credit card users fund the cost of expensive rewards points and frequent flier schemes, despite not all users benefiting from such schemes.
Reserve Bank governor Michele Bullock said the changes would “make card payments simpler for consumers and help businesses get better value from their payment services”.
“Surcharging no longer works as intended,” she said. “Consumers and businesses find the rules complex and confusing, surcharges are often not well disclosed, and most consumers want surcharging to stop,” Bullock said.
More to come
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