A new Australian Government review of payment surcharges could abolish card fees from purchases made with a debit card.The Australian Government has announced it is prepared to scrap card fees for non-cash purchases, according to an October media release from the Prime Minister, Treasurer and Assistant Treasurer. The potential ban on card fees depends on further advice from the Reserve Bank of Australia and would include measures to protect both small businesses and customers.
According to the announcement, the Australian Government is aiming to crack down on unfair surcharges from purchases made with debit cards and will provide an additional $2.1 million to the Australian Competition and Consumer Commission (ACCC) to help tackle the problem.
The potential ban would also only affect debit card fees. Fees from purchases made with a credit card have not been included in the proposed changes.
Why do card fees exist?
When businesses accept a card payment, there are numerous other companies that are involved in the transaction. The customer’s bank, the payment network (such as Eftpos, Visa or Mastercard) and the businesses’ bank or financial institution all charge a small fee for administering their part of the transaction.
The ACCC allows these costs to be passed on to the customer in the form of card fees, as long as the fee only covers the cost to the business. In other words, a business is not allowed to make any money for themselves off these fees.
Big businesses like major supermarkets or other large retailers are able to negotiate very low costs with the payment networks that they sign up with, meaning that they will often opt not to charge card fees as they can more easily absorb these costs.
For smaller businesses, the fees charged by payment platforms and banks may be higher, so it may be more tempting for the business to pass these charges on to the customer in the form of a surcharge.
According to the ACCC, the average cost of an Eftpos payment is around 0.5% of the payment, while for Visa and Mastercard it’s closer to 1%.
While some groups are worried that a ban on card fees would mean that small businesses are forced to pay this extra cost themselves, the Australian Government’s decision on whether or not to implement a ban seems to hinge on whether small businesses can be spared these additional costs.
The cost of cash
Importantly, businesses also have to pay to use cash, although these costs are harder to quantify and are generally treated as part of the normal cost of operating a business. For example, a café or bar will have to pay the wages of the staff member who counts up the cash at the end of the day, and a large business will likely pay a money transport company like Armaguard to safely ferry its cash to the bank. These costs – administration, transport, security – are the same costs incurred by card payment systems. The difference is that cash has been around a lot longer, so the cost of using it has already been factored in for most businesses.
Cash has to stay
While reducing or eliminating card fees for customers is a good idea, this could lead to more customers and businesses opting for card transactions over cash, and there’s a risk that banks, financial institutions and big retailers may use this as an excuse to eliminate their use of cash to avoid the costs of counting, transport and security that go along with it. Already, some bank branches around Australia have eliminated or cut down on cash transactions. It is up to the Australian Government to ensure that banks and businesses keep accepting cash payments.
The Australian Government has announced it is prepared to scrap card fees for non-cash purchases, according to an October media release from the Prime Minister, Treasurer and Assistant Treasurer. The potential ban on card fees depends on further advice from the Reserve Bank of Australia and would include measures to protect both small businesses and customers.
According to the announcement, the Australian Government is aiming to crack down on unfair surcharges from purchases made with debit cards and will provide an additional $2.1 million to the Australian Competition and Consumer Commission (ACCC) to help tackle the problem.
The potential ban would also only affect debit card fees. Fees from purchases made with a credit card have not been included in the proposed changes.
Why do card fees exist?
When businesses accept a card payment, there are numerous other companies that are involved in the transaction. The customer’s bank, the payment network (such as Eftpos, Visa or Mastercard) and the businesses’ bank or financial institution all charge a small fee for administering their part of the transaction.
The ACCC allows these costs to be passed on to the customer in the form of card fees, as long as the fee only covers the cost to the business. In other words, a business is not allowed to make any money for themselves off these fees.
Big businesses like major supermarkets or other large retailers are able to negotiate very low costs with the payment networks that they sign up with, meaning that they will often opt not to charge card fees as they can more easily absorb these costs.
For smaller businesses, the fees charged by payment platforms and banks may be higher, so it may be more tempting for the business to pass these charges on to the customer in the form of a surcharge.
According to the ACCC, the average cost of an Eftpos payment is around 0.5% of the payment, while for Visa and Mastercard it’s closer to 1%.
While some groups are worried that a ban on card fees would mean that small businesses are forced to pay this extra cost themselves, the Australian Government’s decision on whether or not to implement a ban seems to hinge on whether small businesses can be spared these additional costs.
The cost of cash
Importantly, businesses also have to pay to use cash, although these costs are harder to quantify and are generally treated as part of the normal cost of operating a business. For example, a café or bar will have to pay the wages of the staff member who counts up the cash at the end of the day, and a large business will likely pay a money transport company like Armaguard to safely ferry its cash to the bank. These costs – administration, transport, security – are the same costs incurred by card payment systems. The difference is that cash has been around a lot longer, so the cost of using it has already been factored in for most businesses.
Cash has to stay
While reducing or eliminating card fees for customers is a good idea, this could lead to more customers and businesses opting for card transactions over cash, and there’s a risk that banks, financial institutions and big retailers may use this as an excuse to eliminate their use of cash to avoid the costs of counting, transport and security that go along with it. Already, some bank branches around Australia have eliminated or cut down on cash transactions. It is up to the Australian Government to ensure that banks and businesses keep accepting cash payments.
