The government has positioned its promise to ban debit surcharges as cost-of-living relief, but Australia’s peak fintech body has warned that an “oversimplified” discussion about the fees could choke a revenue stream crucial to the viability of innovative payment fintechs.
That revenue stream – which the Reserve Bank of Australia has pegged at $6.4 billion per year – is generated by the fees that merchants pay their banks, or independent payment fintechs, to provide the back-end infrastructure necessary to complete financial transactions.
Some banks restrict merchants to passing on just the fees they pay the bank – Westpac, for example, charges around 1.3 per cent fees for credit card purchases and 0.6 per cent for debit cards – but others allow merchants to charge higher fees to cover their costs.
Amidst reports that retailers are bending the rules by charging 10 per cent card fees on a cup of coffee – despite ACCC’s ban on “excessive” surcharges – a newly announced Reserve Bank of Australia (RBA) review could end what the government called “unfair and excessive” fees.
“Australians use cards extensively to pay for goods and services [and] benefit from the convenience and security provided by card payments,” the RBA said in releasing an Issues Paper for comment on its plans to ensure its payments framework is “fit for purpose.”
“In an environment of heightened concern around the cost of living, card payment costs and surcharging are attracting more attention,” the RBA said, suggesting that “merchants would be less likely to surcharge consumers if card payment costs were lower.”
Consumers’ card transition was already well underway when governments’ pandemic-era push for contactless payments, and consumers’ shift to online purchasing, more than halved cash payments from 2019 to 2022 – with just 2.1 per cent of payments to be cash this year.
Card payments comprised 26 per cent of payments in Australia back in 2007, but this had risen to 63 per cent in 2019 and surged to 76 per cent in 2022 as the pandemic changed consumer behaviour – driving fintechs to launch a host of new digital payment products.
The prime minister says the government is prepared to ban debit card surcharges from 2026. Photo: ANZ
Yet with surcharges now ubiquitous, the government is “prepared to ban debit card surcharging” from 2026, Prime Minister Anthony Albanese said in announcing a crackdown that complements the Strategic Plan for Australia’s Payments System launched last year.
“Consumers shouldn’t be punished for using cards or digital payments,” Treasurer Jim Chalmers added, “and at the same time small businesses shouldn’t have to pay hefty fees just to get paid themselves.”
Cost of living vs cost of innovation?
The RBA has already identified several areas where the “efficiency and competitiveness of card payments could be improved,” noting that merchant service fees are higher in Australia than other countries, and that larger merchants pay lower fees than smaller ones.
“Opaque” costs and “limited publicly available information” on fee structures, the RBA also noted, “can make it hard for merchants to understand the fees that they are paying and identify ways to reduce their costs.”
Yet for all the government’s focus on cost of living – other new measures could ban subscription traps and exploitative dark patterns that extract money from consumers – some worry the barrage of changes could damage a key revenue stream that fintechs rely upon.
“We’re concerned about the broader implications of fully stamping out surcharges for debit cards,” FinTech Australia head of policy Katie Wilson said, warning of the “risk here of the issue being oversimplified amid the political debate.”
“Merchant fees support more than banks,” she continued, noting that a 20-cent merchant fee might only see 10 cents going to the bank – with the rest supporting firms such as Australian fintechs “who manage a smaller part of the payment process.”
Many fintechs have used lower fees to take on Big Four rivals: Tyro, for example, charges a flat 1.4 per cent transaction fee on payments processed through its terminals while fintech giant Square tapped buy-now-pay-later innovator Afterpay’s expertise in low-cost finance.
“Fintechs have already made significant improvements as the payments ecosystem has innovated and broadened access to smaller merchants,” Wilson said.
Inappropriate reform, she warned, “risks jobs and innovation in the fintech industry, to consumers’ ultimate detriment.”
The government recognises the risk of “unintended consequences for the broader economy”, Albanese said, and will use the RBA’s review to build “sufficient steps and safeguards to ensure both small businesses and consumers can benefit from lower costs.”
