Given the current focus on the rise in the use of cash, it is worth remembering that each year Australian households are collectively charged somewhere between 1 billion dollars and 4 billion dollars in payment surcharges, which is a fee paid by customers, in addition to the price of a good or service, allowing merchants to pass on the cost of the customer’s chosen payment method. These days its mostly debit transactions which might also be triggered by electronic payments from phones and other devices, as well as debit and credit cards.
The RBA accelerated a review into merchant payment costs and surcharging, and has now released the 90 plus submissions received from interested parties and it is clearly creating a storm, with some calling for the banning of said surcharges and others arguing that banning surcharges would result in higher prices to consumers.
When surcharging was introduced 20 years ago, the RBA put Australia out of step with most of the rest of the world, where the practice is illegal. At the time the central bank’s intention was to use them as a price signal to customers that the more expensive payment methods at the time – credit cards – were a burden for the seller. I always believed this is a policy error.
They have been out maneuvered by banks and lately FinTechs who have introduced fixed pricing plans in an attempt to reduce payment fee complexity for business customers. These plans let a merchant pay the same cost irrespective of what card the customer uses. But this has resulted in more surcharging of debit cards, which is the fastest growing segment of the payments market, and which in theory should be the cheapest.
So, some firms are benefiting from the current system, especially larger firms. Second, there is little transparency and as transaction volumes rise, the costs on households rise too. Third, the original assumptions about unbundling and price signaling has proven incorrect, as technology has evolved faster than regulators ability to keep up. To me the benefits of removing surcharging altogether outweigh other options, but of course the question will be, will households at the end of the day, get the benefit. They certainly should, but big business are often in the way…
