The RBA is looking at ways to reduce merchant card payment costs through promoting competition and efficiency.
One of the options on the table is banning debit card surcharges, which is a key aspect of the discussion. They are also looking at how to make the cost of acceptance lower for small businesses; so surcharging isn’t as big an issue.
Card fees have become a bigger issue now that cards have replaced cash as the primary form of payment. Cards make up around 90% of retail payments, with debit cards the most often used card type.
For small businesses, the cost of payments cuts into their bottom line. That’s critical in today’s economic environment where many businesses are struggling and have very tight margins. It costs on average three times more for small businesses to accept card payments as it does large businesses. That’s why more small businesses are opting to surcharge.
The RBA makes the comment that the fees small businesses pay are too high, and they can’t justify the difference between the discounted rates large businesses pay, and what small businesses have to pay. This is why many small businesses choose to surcharge customers to offset these costs. Around 50% of small merchants pay over 1.5% in fees, and some even pay over 2.5% per transaction.
If surcharging was banned without reducing these costs, it could be damaging for small businesses. The RBA points out that the fees charged to small businesses are disproportionately high compared to what large businesses pay, and this discrepancy is unjustifiable.
One in five Australians (21%) say debit card surcharges are their most hated fee, according to a new survey by Money.com.au. It’s Gen Z – despite being more familiar with cashless payments – who are most frustrated by card surcharges, with one-quarter (25%) listing them as the fee they resent most. Following closely are Gen X (22%), Millennials (20%), and Boomers (19%).
Younger generations use debit cards more than any other payment method, so it makes sense that the fees associated with them would be a bigger issue for what they use most.
At last count, the RBA found that 7.5% of payments had a surcharge, but it has grown significantly since then. It’s likely much higher now as more retailers adopt surcharging. So, surcharges are more present and more of a concern than ever before.
Second on the list of ‘grudge fees’ are credit card fees (18%), including annual fees and foreign transaction fees, according to Money.com.au’s survey. Boomers were the most likely to list credit card fees as their top annoyance, followed by Gen X (18%), Millennials (18%), and Gen Z (12%).
Peter Drennan is research and data expert at Money.com.au.