In a move that could reshape the way Australians pay for everyday purchases, the federal government is preparing to ban businesses from imposing surcharges on debit card transactions.
The plan, awaiting review by the Reserve Bank of Australia (RBA), promises to put money back in consumers’ pockets.
The RBA, which is accepting submissions until December, published its first consultation paper on Tuesday to coincide with the joint announcement by Prime Minister Anthony Albanese and Treasurer Jim Chalmers.
But as with any significant political change, it’s worth taking a closer look to see what it really means for all of us.
According to RBA data, the potential savings are huge: up to $500 million a year if surcharges on debit cards are banned.
And if the government goes further and includes credit card transaction fees in the ban, these savings could reach a considerable impact. annually.
While these numbers seem impressive, when analyzed, the savings per cardholder would be approximately $140 per year.
This amount isn’t life-changing, but for frequent shoppers or anyone making larger purchases, it could add up.
Of course, not everyone will benefit equally. Those who buy less may not notice the difference.
How does Australia fit into the world?
RBA data shows Australians pay more in merchant service fees than Europeans, but less than US consumers.
These fees are what businesses pay to accept card payments, and they are passed on to us in the form of surcharges.
The proposed ban on surcharges on debit cards occupies a middle position in the global regulatory landscape. The European Union, the United Kingdom and Malaysia have implemented complete bans on surcharges for most debit and credit card transactions.
But in the United States and Canada, companies can still charge you for using a credit card, even though additional debit card fees aren’t allowed.
The trader’s point of view
While banning supplements seems like a clear win for consumers, it’s critical to consider the impact on merchants, particularly small businesses. The reality is that not all merchants are equal when it comes to card payment fees.
In Australia, there is a significant disparity between the fees paid by large and small merchants. In fact, RBA data shows that small businesses pay fees around three times higher than large businesses.
It all depends on negotiating power. Larger companies can negotiate better deals on fees. This difference is mainly due to the ability of large merchants to offer favorable wholesale fees for processing card transactions.
For small businesses, the cost of accepting cards can vary from less than 1 percent to more than 2 percent of the transaction value, which can reduce profits, especially for those operating on margins. tight.
While the ban may seem like good news to consumers, there is still a need to address larger issues in the payment system. Innovations such as “least cost routing,” which allows businesses to process transactions at the lowest possible cost, could potentially help level the playing field.
How could companies exploit these vulnerabilities?
If payment costs are passed entirely on to merchants, they might find ways to recoup those expenses in other ways. We have seen this happen in other countries that have abolished surcharges. Some potential strategies include
- slightly increase overall prices to compensate for lost supplement revenue
- implement or increase minimum purchase requirements for card payments
- introduce new “service” or “convenience” fees for all transactions, or increase weekend and public holiday surcharges.
Most of these tactics have been around for a while. The challenge for regulators will be to monitor and address any new practices that emerge in response to the new rules.
Credit cards: the elephant in the room
While banning debit card surcharges is a step in the right direction, it raises an obvious question: why not extend it to credit cards?
The option to ban surcharges on credit cards as well as debit cards is proposed in the RBA’s review consultation document. The answer lies in the complex web of interchange fees and merchant costs associated with credit card transactions.
Credit card transactions cost merchants more because of the additional services and rewards programs offered by credit card issuers.
Banning surcharges on these products could potentially lead merchants to raise their base prices to cover these costs. This could effectively lead users of cheaper payment methods to subsidize those who opt for premium cards.
The absence of surcharges could also reduce competitive pressure on card networks to control their fees, which could lead to higher costs in the long term.
Some countries have successfully banned surcharges on credit cards, but they generally have stricter regulations on interchange fees than Australia.
As policymakers tackle this complex issue, they must weigh the benefits of simplicity for the consumer against the risk of distorting market signals and potentially increasing costs for both merchants and consumers. .
