Editor’s note: This is an edited transcript of an interview between the ABC Radio National’s Andy Park and Professor Steve Worthington from Swinburne University of Technology on June 18, 2024.
Andy Park: Steve, it seems like in the past buying things was kind of simple. You just gave the merchant your money and they gave you the product. There was a price and when you went to pay for the item, you paid that price. It was rather more simple. When did it get so complicated?
Steve Worthington: The RBA bank allowed surcharging in 20 years ago in 2004. So, that allowed merchants, who accept payments, to surcharge. But very few did at the time. And the regulator, the ACCC, pursued some of those early people with surcharges and penalized them for that. But we seem to have a bit of an outbreak of surcharging. More than seems to; definitely has been an outbreak of surcharging. I had lunch today at a restaurant and they're asking for a 2.2% surcharge on all payment cards.
Andy Park: 2.2%? That's pretty up there actually. I'm not sure if I've seen one [that high]. I've seen about 2%. They're usually on restaurants, convenience stores, the sort of store that has a buzzer that goes bing-bong when you walk in. That's kind of when I know that they might be charging me a transaction fee. What are some of the sorts of vendors or sorts of products that tend to come with these transaction fees?
Steve Worthington: It's a very broad answer I'll have to give you there. It's really often the smaller merchants, if you like, the convenience stores, the small cafes, restaurants perhaps. It's not the big players like the supermarket chains or the airline industry, because they're so big that the actual merchant service fees are very, very low for them because the banks who are involved in this want to keep them as customers. So, it's mostly the small to medium-sized enterprises who are actually using surcharging, in my opinion, as a way of getting some extra money into the tills.
Andy Park: The RBA's Head of Payments Policy, Ellis Connolly, announced a review, a very wide-ranging review, you might say, into card and transaction fees. He also pointed to overseas card fees in particular being as high as 5% or 6%. Are there actually any good reasons that buying things from overseas should have these sorts of higher fees?
Steve Worthington: There are certain banks in Australia who actually will waive those fees for you. There are no international transaction fees, but it's often going through Visa or Mastercard payment routes, as well as perhaps American Express, but particularly Visa or Mastercard. And when those cards are issued outside of Australia, then it's possible that people can add extra charges on for using the card here or when people from overseas are coming here, they pay extra as well. So, it's a big thing.
And Ellis was quite right when he was saying there's a whole lot of things that need to be adjusted here because the last legislation on these matters was in 1998, the Payment Services Act, and that gives regulatory powers to the Reserve Bank of Australia, but they need to change those powers because there's many new ways of paying these days. We're not just cash or credit cards. We've got debit cards. We've got paying on digital means from your mobile or your watch, whatever. And so, there's a whole lot of new players in the market. And I don't think they're actually being regulated in the way that the RBA would like.
Andy Park: It is heartening that the RBA is now onto this, but you could mount the argument that this is a bit latent. During the pandemic, when everyone was sort of cash-phobic for hygiene reasons, I really noticed these sorts of fees creeping in more and more. Who do we point the finger at, at this latency, if you like? Is it the government, the Minister for Financial Services, the Treasurer, or the RBA?
Steve Worthington: Well, I suppose in a sense, what I've already said, the RBA set out with this surcharging idea initially 20 years ago so that we would divide our attention between both debit and credit cards. And they wanted to move us more towards using debit cards than credit cards. And that actually is what happened where debit cards are much more frequently used than credit cards these days. But that's 20 years ago.
What we're seeing now is small merchants using Square and also one called Stripe. Now, they have a merchant service fee that's around about 2%. And that's taken by them as you use that particular terminal to make a payment with your card or your phone or whatever. So, things have moved on and there's new players in the market that are not regulated. And I think the RBA wants to get some sort of organisation there, some sort of regulatory power over them because otherwise, it's just going to get more and more complicated.
Andy Park: The RBA also flagged a crackdown on buy now, pay later operators. They're another sort of financial services provider that's been leaping ahead in bounds really at the present moment. They might even compel operators such as Afterpay to ditch the no surcharge rules currently forced on retailers. What do you think about that one, Steve? I mean, would you welcome that?
Steve Worthington: That's a very complicated one. Putting surcharges, allowing buy now, pay later people to charge a surcharge for their transactions is a tricky one. I think there's a big challenge for buy now, pay later. We're seeing just today, I think, the collapse of a one called Laybuy, which was both in Australia and New Zealand, and Apple Pay has shut down their Apple Pay later, which was effectively a buy now, pay later thing. So, I think the buy now, pay later fashion has gone out of fashion and the companies themselves are struggling. They've only got about 2% of the card purchases market. So, surcharging would help them, yes, but that's a very risky manoeuvre to put that on to buy now, pay later.
Andy Park: Is the complexity of this whole system an argument to really ensure that cash is still a viable payment option? We know the costs of cash are high and becoming more increased because of less and less people using them. We know Armaguard was risking foreclosure recently because of the same sorts of reasons. But it does reinforce this idea. You know where you stand when you're holding a $20 note in your hand and how much you're expecting back in change from the vendor.
Steve Worthington: Very true. I'm very keen on seeing cash survive. More than survive, I'd like to see cash come back into fashion again, because as you pointed out, when you're paying as a customer, there's no surcharges on cash and no fees attached to it. And there's a great thing there called anonymity. No one knows what you bought and how much you've spent. Also, I think when it comes to educating our children into where value is or what things cost, when you're just tapping on with a card or your mobile phone, a child looks at it and thinks, oh, that's the way people pay for things. They don't see the money coming across, if you like, the actual coins and notes. I think that learning – getting people to, particularly children, to learn that things do cost money, real money is quite important.
Editor’s note: That was an edited transcript of an interview between the ABC Radio National’s Andy Park and Professor Steve Worthington from Swinburne University of Technology on June 18, 2024.