The security of online shopping could be at risk if the RBA cuts card surcharges that, a new analysis has concluded, no longer serve their purpose and impose “significant challenges” on merchants and customers who could save $1.2 billion annually if the fees are eliminated.

Card surcharges – which add a percentage of the cost of a sale to cover the fees merchants pay to banks and third-party card processors – are theoretically set lower for debit than credit cards to encourage consumers not to spend money they don’t have.

Yet with cash rare and merchants typically charging similar fees for debit and credit cards, that choice is illusory, the RBA found in issuing a new Consultation Paper outlining proposed changes as part of its ongoing Review of Merchant Card Payment Costs and Surcharging.

A recent Visa-Lonergan Research survey of 1,006 adult Australians found that just 25 per cent could identify when surcharges are allowed and 25 per cent wrongly believe that surcharges apply only to credit card payments.

With their value as an incentive lost, the surcharges are “no longer achieving [the] intended purpose of steering consumers towards cheaper payment methods” like debit cards and cash, the RBA said.

There are rules about what surcharges can be added and under what circumstances, but the increasing ubiquity of surcharges has created “significant challenges” enforcing them, the agency concluded as it continued an overhaul that began with last year’s Issues Paper.

A ban, the RBA said, would simplify card payments, make consumer costs more transparent, and increase competition – not to mention fulfilling a Labor election promise to “ease costs for consumers… getting slugged for surcharges even when they use their own money.”

Calling the ban a “clean and clear decision” mirroring moves in the EU and UK, Swinburne professor Steve Worthington said that payments are a cost of doing business so “why are [they] not just incorporated into the price of all goods and services, like all other costs?”

That’s a sentiment shared by 85 per cent of the Visa-Lonergan survey respondents, who said they would prefer surcharges be built into prices rather than added on top of final bill amounts.

Charting the way to post-cash future

The mooted ban would be the most visible sign of a systemic realignment that the RBA is undertaking to rebalance a rapidly changing digital economy, with Australia’s 48.5 million debit and 16.8 million credit cards displacing cash to become the de facto payment method.

Cash comprised just 13 per cent of payments in the RBA’s last Consumer Payments Survey in 2022 and this is certain to dip further when this year’s triennial survey is completed given that the number of card purchases grew by 7.2 per cent last year.

Fearing that abandonment of cash would marginalise vulnerable parts of Australia’s population, the RBA last year intervened to force essential businesses to continue accepting cash, amidst plans to regulate mobile digital wallets like money.

When your $6 daily coffee costs $6.12, it can quickly add up over time. Photo: Shutterstock

Yet point-of-sale surcharges are only one part of the story: the RBA has also proposed cutting the interchange fees that businesses pay to their card providers.

“It is now cheaper to process card payments”, the RBA said, arguing that the proposed reduction would save businesses around $1.2 billion of interchange fees per year “and make 90 per cent of businesses better off”.

Card networks and large payment acquirers should also publish the fees they charge, the RBA said, arguing that improving transparency across the digital payments supply chain “will boost competition and help businesses find the best plan for accepting card payments.”

Warnings of unintended consequences

Financial service firms have urged caution despite promises of reduced costs, with Visa Oceania group country manager Alan Machet calling the ban a “great outcome” for consumers – but warning that reducing interchange fees could have drastic consequences.

Cuts of up to 88 per cent are “a dramatic shift that would have ripple effects far beyond payments,” he said, “[and] risks reducing local investment in fraud protection and innovation that safeguard consumers and strengthen Australia’s digital payments ecosystem.”

It’s a concern that Visa spelled out in greater detail in its January submission to the RBA review, in which it “urge[d the RBA] to consider the substantial industry investment required to ensure security keeps pace with innovation, and steps ahead of cybercriminals.”

“Enabling safe and seamless cross-border transactions… requires additional investment in technology to monitor and prevent fraud and manage risk,” Visa said, “such as zero liability for fraudulent transactions, chargeback processing, and cybersecurity capabilities.”

Fintechs have expressed similar concerns, with innovators similarly cautious about the prospect of a total ban on fees that they argue provides essential funding to support payments innovation.

While the bans are a “win for consumers, which has always been the fintech industry’s broad goal,” FinTech Australia CEO Rehan D’Almedia said, “several finer points give us and the industry cause for concern, given their broader implications.”

“Interchange fees provide the economics that underpin the key elements of an efficient electronic payment ecosystem,” he said, adding that they “should not be viewed simply as a cost to an acquirer/merchant which needs to be regulated to the lowest possible level.”

The fees “should be high enough for new players, typically fintechs, to be incentivised to enter the space,” he said, “and low enough that merchants are encouraged to adopt digital payments.”