Australian banks have expressed strong support for a proposal to ban surcharges on credit and debit card transactions. However, they have raised concerns that consumers may face higher costs in other areas as a result of this change. The Reserve Bank of Australia (RBA) announced in July 2023 its intention to eliminate these surcharges, which some merchants impose on customers for the convenience of using cards. The aim is to alleviate the financial burden on consumers while offsetting the cost to businesses by reducing fees paid to card issuers.
In a comprehensive submission to the RBA, the Australian Banking Association (ABA) described the current surcharging framework as “clearly broken” and in need of reform. The association noted that while surcharges may have served a purpose in the past, they have become increasingly burdensome, opaque, and arbitrary for Australian consumers. This shift has strayed from the original goal of enhancing market efficiency.
Simon Birmingham, chief executive of the ABA, emphasized the need for certainty at the checkout, stating that a ban on surcharges is long overdue. Despite this support, the ABA cautioned that the RBA’s proposal to lower the cap on interchange fees—from 0.8 percent to 0.3 percent of transaction value for domestic credit cards—could lead to unintended consequences for households and businesses alike.
The association contended that such a change would amount to the most significant transformation of payment economics in two decades. It expressed concern that this reduction would disproportionately benefit multinational payment technology companies while potentially harming local businesses. For example, the new interchange cap would significantly reduce fees earned on transactions via digital wallets like Apple Pay, resulting in a loss of revenue that could be detrimental to Australian card issuers.
Furthermore, the ABA warned that reduced interchange fees could lead card issuers to cut consumer benefits, such as the interest-free periods that many of Australia’s 17 million cardholders rely on to manage their expenses. The association suggested that there are more targeted and effective methods for addressing the RBA’s fairness concerns regarding the impact of interchange fees on small businesses.
While the ABA supports the ban on surcharges, it questions whether consumers will actually see savings, arguing that merchants might simply increase prices to compensate for lost revenue. The association stated, “The RBA’s approach treats a bookkeeping change in how costs are recovered as if it were a real income gain for consumers, which is not the case.”
As the RBA considers the feedback from the banking sector, the potential impacts of these proposals on the broader economy and consumer behavior remain to be seen.
