The announcement by the RBA that it is considering an all-out ban on card surcharging signals a tipping point in Australia’s payments landscape.
Merchants are paying way too much for card-based payment services. Interventions like low-cost routing have proven totally ineffective against the surcharging rort, with merchants simply opting to impose a single flat surcharge to cover the total cost of payment. The result is that Australian consumers are forking out more in surcharges than ever before.
This change would bring us into line with most other developed economies. Card companies will lobby hard against it, but the levy will only hold back the water for so long.
Why a surcharging ban will usher in a new era of payments
When surcharging is banned, it will be a win for consumers, but it will divide merchants across Australia and drive the next big era in payments – one that consumers have been holding out for.
On one side, there will be a whole lot of disgruntled merchants who complain about their cost of payments but do nothing to change it.
On the other side, there will be those who proactively address their cost of payments through the adoption of account-to-account payments, a shift that will completely alter how we shop and transact.
Australia’s modern PayTo payment rails have been in existence for a couple of years, but uptake has been subdued. Merchants haven’t yet moved on this in high numbers because they have been able to keep surcharging the cost of cards. But thanks to PayTo and emerging payments technologies, merchants can now swap out or complement their high-cost card payment options with speedy, safe and direct account-to-account payment options. And they can do it today, regardless of when the rules are changed.
Pay by Bank a global switch
‘Pay by Bank’ launched in Australia in 2023 and is a growing global phenomenon that is revolutionising how consumers move money and pay online and at physical checkouts, bringing greater choice, fairness and competition to the payments market.
Pay by Bank is an account-to-account payment method powered by the PayTo network that gives consumers a free, secure and instant payment experience which bypasses clunky, expensive and risky card payments. Pay by Bank is accepted by all Australian banks and can be used for both recurring payments and checkout payments.
By simplifying the payment journey through the PayTo real-time network, Pay by Bank provides numerous benefits. Crucially, it is much safer and lowers fraud risk through instant authorisation and verification, in addition to higher security measures like multifactor authentication and biometric authentication.
The ease of integration reduces complexities in areas like accounting and IT, and by bypassing cards it cuts out unnecessary fees. For those businesses already hurting due to the high cost of payment services and who want to be ready for regulatory changes, this will be a game-changer – as we have seen across Europe and the US where surcharging is already banned.
Younger users to drive account-to-account switch
One of the other big drivers of account-to-account payments growth will be younger millennials and Gen Zs who are suffering hugely under the cost of living right now. While they are digital wallet-savvy, they are also penny conscious and pissed off. Younger Aussies have been turning to practices like ‘cash stuffing’ to save money and avoid the hidden cost of cards. They are also turning their backs on Buy Now Pay Later options due to increased fees.
These Australians are an increasingly frugal bunch who want to use real money from their bank without any catches. Those merchants who offer them cash certainty with greater security and digital convenience will earn their loyalty.
Mandated direct debit switch to PayTo will further hasten move to account-to-account
The other change that will take place locally is the retirement of the BECS direct debit system by 2030 that is being replaced with PayTo. When you consider how many payments already take place via direct debit – from bill pay to subscriptions services, online retailers, and gig economy purchases – it’s a widespread change that thousands of businesses will have to make, either as a back-end integration or a button at the physical or online checkout.
Whether they need to cut payment costs to survive the surcharging ban, improve their payments user experience and security, or find an alternative to the old direct debit system (or all of the above), Pay by Bank is currently the only alternative that achieves these outcomes. Either that, or the card companies will need to cut their fees. Don’t hold your breath.
It’s been over a decade since tap-and-go revolutionised the checkout experience. The ban on surcharging will see us enter a new phase of account-to-account payments. Merchants can pre-empt where the tide is taking us or face the looming cost.
Ben Zyl is co-founder and CEO of Waave.