Whether it’s buying your daily coffee, dining out or shopping at your local small business, have you ever questioned why the charges on your bank statement are more than what you were quoted?
Chances are if you’re paying by card, you’re getting slugged a surcharge with each transaction. And these charges are adding up, every day in every way. According to the Reserve Bank of Australia, we’re paying close to a billion dollars each year in payment processing fees — $960.26 million to be precise.
Can retailers charge fees on card transactions?
The short answer is yes — if you decide to use a card instead of paying by cash. It’s perfectly legal but the RBA isn’t happy about it.
Following the 2019-21 Review of Retail Payments Regulation, the RBA introduced Least-cost routing (LCR).
Essentially, this means that when a customer pays with a dual-network debit card, the retailer can send the transaction via the debit network that costs the least.
So if the retailer chooses not to route via Eftpos, which charges the cheapest fees, the transaction will be sent via the default network, which means the surcharge could be greater for the customer.
But if you’re one of those people who tap and go, it can get automatically routed to Visa or Mastercard, which charges more.
Large retailers tend to absorb the fees, however smaller businesses tend to pass them onto customers. The fee retailers charge are determined by how transactions are processed via payment providers and banks.
Who’s fault it is depends on who you listen to. The Australian Banking Association’s chief executive Anna Bligh says that every bank offers LCR, so it’s down to the business’s choice. But small businesses say they have little choice. And ultimately it’s us – the customer – who loses out.
What are the rates?
The cost of the surcharge depends where the cost is routed to.
- Transactions using Eftpos generally carry the lowest fees of 0.3-0.5 per cent. You can select the CHQ or SAV button to choose this.
- Visa and Mastercard debit surcharges range from 0.5-1 per cent, while their credit charges are around 1-1.5 per cent.
- The average processing fee for Diners Club is 1.7 per cent and American Express is 1.3 per cent and the fees with these cards are not regulated in Australia.
The RBA’s stick and carrot approach
Currently, only 64 per cent of business terminals are enabled with LCR, and the RBA is not happy. As such, RBA governor Michele Bullock has set a target of 80 per cent by June 2024, for retailers to adopt LCR. Failing this, the RBA is threatening to mandate the industry to LCR.
So what can we do? Obviously paying with cash is one way to avoid these charges, but we’re also moving towards fewer cash transactions. So Bob Katter is likely to save, but those of us who tap and go will get hit.
Ultimately, swiping takes a few seconds longer but it allows you to pay via Eftpos. And you can always chat to your local coffee shop or retailer to see if they can get an LCR terminal.
Have you noticed the surcharge on your statements for card purchases? Do you think the RBA will mandate LCR? Is your local retailer using Eftpos? Let us know.
Also read: Older Australians ‘left behind‘ by increasingly cashless society