US landmark settlement protects SMEs, highlighting flaws in the RBA's proposed blanket card surcharging ban for Australia
Aussie SMEs warn RBA not to ignore global trends, with the current sledgehammer approach threatening business viability and increasing inflation
Australian small and medium enterprises (SMEs) and their representative groups are calling on the Reserve Bank of Australia (RBA) to learn from overseas, following a landmark US settlement that ends two decades of litigation. As part of the settlement, Visa and Mastercard agreed to a deal that grants merchants greater freedom to impose surcharges on high-cost premium and rewards credit cards.
This move by the US, a jurisdiction that historically offered less surcharging flexibility, stands in stark contrast to the RBA’s proposal for a blanket ban on surcharges in Australia, where card fees are a critical component of payment costs.
SMEs have strongly condemned the Reserve Bank of Australia’s (RBA) proposed blanket ban on debit and credit card surcharges, warning the policy is a 'sledgehammer solution' that runs contrary to global trends towards greater merchant flexibility.
US settlement outcome: Target the cost, Not the Merchant
The US settlement gives merchants the option to choose whether to accept cards in specific categories, including premium consumer cards that carry higher swipe fees (interchange fees). Critically, it gives them more freedom to impose surcharges on these high-cost credit cards.
Industry bodies assert that the US model offers a direct lesson for the RBA: a targeted approach that allows merchants to pass on the costs of expensive payment methods (like rewards credit cards) to the users of those cards is the most transparent and fair mechanism.
Many submissions urged the RBA to limit the ban to lower-cost debit cards, preserving a fee-free option for customers while allowing merchants to continue passing on the costs of more expensive credit cards. This targeted ban on only debit card surcharging was the initial promise of Prime Minister Anthony Albanese and Treasurer Jim Chalmers before the last election.
If the RBA proceeds with its current blanket ban, small business submissions warn the outcome will be an anti-competitive, inflationary 'waterbed effect,' forcing all costs onto consumers.
“A complete surcharge ban would likely result in a shift of these costs to higher base prices or increased service fees, amounting to an across-the-board cost of living increase with all customers paying more regardless of how they choose to pay,” said the Australian Travel Industry Association (ATIA) in their submission to the RBA.
The Australian Hotels Association (AHA) also said: “Nothing comes for free – but under the current RBA proposal, credit card users will be getting something for nothing – and cash users and debit card users will be paying for it.”
Calls for the RBA to adopt a nuanced, targeted fix using lessons learned from overseas
Opponents are urging the RBA to abandon the 'sledgehammer' blanket ban and adopt a nuanced, targeted approach that aligns with global best practices for cost transparency and merchant choice.
The experience of other major jurisdictions showed that there were clear disasters, with some superior alternatives. Key lessons include:
Targeted approach (US & NZ models): The recent US settlement, which grants merchants the right to surcharge high-cost premium cards, echoes the need for targeted surcharging. This targeted approach is consistent with the New Zealand model, which addresses the RBA’s ‘coffee cup scenario’ (customers being surprised by increased fees compared to advertised prices for small purchases) by limiting the ban to low-value in-store transactions, while preserving the right to surcharge on other channels where costs are clearer.
Avoiding the ‘waterbed effect’ (EU lesson): The European Union surcharge ban led to a hidden “waterbed effect” in which costs were simply transferred to higher headline prices, providing no real consumer benefit. As the European Court of Auditors concluded on the EU ban, “it was a transfer of costs from a visible surcharge to an invisible price increase rather than a true reduction in the consumer's financial burden.”
Promoting competition and price signals (Canada model): Models like Canada's allow for capped, clearly disclosed surcharges and help maintain the essential price signal that encourages competition and the adoption of lower-cost alternatives, such as Least-Cost Routing (LCR). This supports the call to Mandate Dynamic Least Cost Routing (LCR) by default on all dual-network debit card transactions to ensure the lowest available payment rate is used.
Aussie SMEs say the fate of the sector and the pressure on every household budget hangs in the balance.
“In net terms, those businesses currently surcharging will be out of pocket by more than $1 billion,” said the Australian Hotels Association (AHA) in its submission.
