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Australia’s payments industry faces a major rethink of its costs and fee structures, as the Albanese government threatens to ban the practice of surcharging.

This week, the Reserve Bank of Australia (RBA) opened a new review into retail payments regulation, in a move that could bring an end to the controversial practice of surcharging.

As outlined in an RBA , the review will examine the costs merchants face when accepting card payments and the regulatory framework that allows them to surcharge.

Acknowledging the link between payment costs and surcharging, the RBA said that merchants would be “less likely to surcharge” if these costs were lower.

The RBA wants to understand whether it can put downward pressure on payment costs through new measures to promote competition and transparency, and by potentially amending its surcharging rules.

The move has been endorsed by Prime Minister Anthony Albanese, who has said that easing the cost of living is the “number one priority” for his Labor government.

“The Albanese government is cracking down on unfair and excessive card surcharges to get a better deal for Australians and small businesses at the physical and online checkout,” his office said in a .

“The government is prepared to ban debit card surcharges, subject to further work by the RBA and safeguards to ensure both small businesses and consumers can benefit from lower costs.”

Treasurer Jim Chalmers also said he favours a ban on debit surcharging, a move that the Albanese government is prepared to implement from January 1, 2026.

“This is all about getting a better deal for consumers, reducing costs for small businesses and promoting a more competitive payments system,” he said.

“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.”

Stakeholders are invited to submit written feedback on the Issues Paper by December 3, 2024, alongside suggestions for potential reforms.

If the RBA’s Payments System Board decides that a consultation on regulatory action is in the public interest, the RBA will consult further prior to any decisions on reforms being made.

Why now?

In the issues paper, the RBA acknowledges that there is a “big difference” between the card acceptance fees of large merchants and those of small merchants.

In 2022–23, according to RBA data, the average per-transaction fee paid by small merchants was almost three times higher than that paid by large merchants.

As noted by the RBA, a key driver of this difference is the ability of larger merchants to negotiate favourable wholesale fees – including “strategic” interchange rates – for processing card transactions.

Meanwhile, smaller merchants have few other options for accepting card payments outside of flat-fee or “blended” plans, where they are charged a single rate regardless of the transaction type.

Such single rates are “not reflective” of the true cost of processing debit, credit and charge card transactions, said the RBA.

In particular, the cost of accepting debit card transactions has fallen dramatically over the past 20 years, thanks partly to EFTPOS, Australia’s domestic debit network.

Currently, the average EFTPOS transaction costs merchants approximately 20 basis points in fees. In contrast, Visa Debit and Debit Mastercard cost about half a percent; Visa and Mastercard credit cost almost 1 percent; and American Express and Diners Club are each closer to 1.5 percent.

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Nonetheless, when merchants recoup their payment costs through surcharging this results in debit, credit and charge card transactions often being surcharged at the same rate.

“In other words, consumers using higher cost payment methods (such as credit cards) are being cross-subsidised by those using lower cost methods (such as debit cards),” said the RBA.

No surcharging ban without price reform

Among sources who spoke with ����žž, there was potential support for a ban on debit surcharging, but only on the condition that it is accompanied by price reforms.

The Independent Payments Forum (IPF), a new coalition co-founded by Brad Kelly and Warwick Ponder, said it welcomes the review and hopes that it will lead to major reforms of debit card fees.

“It’s now time for the RBA to bare its regulatory teeth and reign in debit card fees that currently plague Australian small businesses and shoppers,” the group said.

“Currently, small businesses and their customers pay the lion’s share of these fees, with big business cutting special deals with the banks and card schemes.”

However, the IPF said that a ban on debit surcharging should not be entertained unless a ban on fixed, blended or bundled pricing is also enacted.

Otherwise, a surcharging ban would benefit consumers, but would leave merchants in a worse position, and still subject to the same distorted fee structures.

IPF members, such as the Australian Association of Convenience Stores (AACS), a founding partner of the group, took a similar view.

Theo Foukkare, CEO of the AACS, said: “We are supportive of a ban on debit card surcharges, but only if there is reform that effectively eliminates the current massive gap between what large and small businesses are paying.”

Wes Lambert, chief executive of the Australian Restaurant & Cafe Association, said: “Our fear is the government will ban surcharging, but not stop banks and payment service providers charging restaurants and cafes the same percentages.”