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Hidden card fees and why cash should make a comeback

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.


Suresh Jain
July 05, 2024

I wonder if RBA will take any action against Credit card companies to make scammers difficult to get money through credit cards. I was unable to stop the transaction on Mastercard after authorising and while it was pending. After only few minutes of doing this transaction I realised it was a scam and rang the issuing bank to stop the transaction and told them that it is going to scammer , but they register it as a disputed transaction and will investigate after it is processed. Later they informed me that once the Mastercard transaction is authorised mc do not allow to stop or cancel. I think that credit card companies should also take action to prevent the scam and help honest customers from becoming victims.

July 02, 2024

Outside of Australia do vendors levy credit & debit card surcharge fees? In looking at some receipts from a recent trip to Europe & UK they do not appear to be doing this? Is this just an Australian hidden tax not by retailers but by financial 3rd parties who do not appear to be any any sort of governance?

July 02, 2024

I resent the insinuation that I'm being mindless when I pay with card. I am well aware that some vendors charge a bit extra. However, the convenience of not having to have a wallet stuffed with notes and coins that have been who-knows-where is in my view worth it. For most things, is an extra 50 cents or so really such a burden? And now that it's in the system we just get used to it, like we did when GST was a much larger add-on. At least most vendors are honest and your receipt shows the surcharge, rather than them just bumping up their prices and tricking you into thinking you're not paying the extra. This is a very first world problem folks!!!!

John Austin
July 02, 2024

In the last 12 months I've travelled to Spain, France and the USA - and not once was charged a surcharge. Came back to Australia and I have to ask every cafe and restaurant whether they charge a surcharge. If they do, I take out cash. Only in Oz?
And what's happened to the RBA inquiry and warning to banks:

July 02, 2024

Less spent, less surcharges.
Markup on retail price of groceries used in making café, takeaway, restaurant offerings is roughly 5 times.
Buy groceries, pay 0.5% surcharge and save:
= (5 - 1) / (0.5% * 5 - 0.5% * 1)
= 200 times the surcharge.

June 30, 2024

As a very small business owner we have publicly stated we will never surcharge. Our price is our price is our price and we absorb the cost. We haven't increased our prices in three years either. Yes our margins are down. As long as I can make a profit and pay the bills I would rather wear the extra costs and have a super happy customer that returns rather than bump things up in price or surcharge and they don't come back next time.

On a side note I negotiated a flat fee with our EFTPOS provider of 1.09% recently across the board, so am happy with that

June 30, 2024

I see people ignorantly tapping their card & paying surcharges all the time. They're oblivious that they're losing many thousands of their hard earned dollars over their life time. A local takeaway near me charges 50c surcharge on purchases less than $5 - that's a 10% surcharge. Ahh the price of convenience.
I have no doubt banks are purposely removing branches & ATM's to make it hard for us to take out cash which means we're forced to pay by card & incur surcharges which fattens their profits.

July 01, 2024

Not really. Some credit cards give you 1% cashback on what you spend so people mindlessly tapping and paying a 1% surcharge are not losing any money to surcharges over their lifetime because they get it all back in cash rewards from the credit card issuer.

Peter B
June 29, 2024

I hate surcharges and once upon a time merchants had to display a sign stating that a surcharge would be added. I have been lucky enough to travel extensively overseas and used local cash cards and had never been charged a surcharge in places like Korea and Taiwan. You add cash to your card, it increases your card by the same amount and when you pay it decreases by the exact amount.
I was shocked to see a surcharge of 5% on a taxi fare last month, but it is perfectly legal for the taxi industry when I queried it and checked online later. Merchants already pay the card provider a fee so it seems like you are being charged more because they can. Providing the ability to pay by card is part of the cost of doing business, just like having lights. The cost of the card service should be spread across all charges since we are being forced to use cards more and more. Card providers must be rubbing their hands with glee.

June 28, 2024

"a price of $5":

Cost of habit in today's money:
bank interest 5%, inflation 3%, to 60, from 20, per day, price $5 each, days per week 5, weeks per year 48:
= FV((1 + 5%) / (1 + 3%) - 1, (60 - 20), -(2 * 5 * 5 * 48), 0)
= $146,130.42

Dumped in Super:
=FV((1 + 10%) / (1 + 3%) - 1, (60 - 20), -(2 * 5 * 5 * 49), 0)
= $464,126.97

Vacuum flask. Coffee lollies. Tap water. The banking fees are but flea bites.

June 28, 2024

Surcharges should be dropped. Credit/debit cards are much lower cost and lower risk than cash. In addition it is much harder to hide card revenue from the ATO. The Government and Banks is where the tap and go windfall has gone.

It not long ago I avoided cash only merchants as I figured they we tax dodgers.

Robert Findlay
June 27, 2024

During my time running businesses, it was cheaper to take a credit card than take cash, as the funds from a credit card are deposited straight into the business bank account.
Conversely, taking cash means paying a staff member to take the cash to the bank each day; and pay the staff wages and vehicle expenses.
In addition it is much safer, as unfortunately we had one attempted robbery. It was on closing time and the staff had left; however it was still very traumatic. Another factor is cheaper insurance for the business if you are not handling cash.
I think the RBA should look at the overall costs involved, as there is a case for banning surcharges. Especially now many small businesses are charging a surcharge for debit cards as well.
R. Findlay

June 27, 2024

I think part of the anger at surcharges is that they're on top of already steep price rises. A basic coffee has gone up by 15-25% over the past 2-3 yrs and surcharges add to the cost. I've also found that some coffee shops ask me to tap my card at a price of $5, but when I look at what's taken out of my bank savings, it's $5.10 ie with a 2% surcharge on top. That's really naughty and should be stopped.


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