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Why bother surcharging?

A decade and a half ago the Reserve Bank of Australia introduced fundamental changes to fees and charges involving payment cards with the aim of lowering charges for merchants and consumers.

But the RBA also allowed merchants to add a surcharge to a transaction, the theory being merchants would price in a way to encourage usage of the lowest cost system.

“More than 5,000 of the circa 6,500 final submissions to the FSI were concerned with surcharging on card payments.”

Reality has proved to be different – as indeed many warned at the time. As a rule, rather than surcharge on economic efficiency grounds, merchants have surcharged based on market power.

For consumers, surcharging is annoying and confusing because there are no set rules and little enforcement of over-charging. Merchants too often blame someone else – usually the banks – for the surcharge when it is something they choose to impose.

And anecdotally, and according to work done on the “black economy”, some merchants have surcharged for extra profit or to encourage cash use – to avoid declaring income. The data however are imprecise here.

The RBA, in its Bulletin of December 2018, accurately and comprehensively describes the history of the regulation of payment card surcharging in Australia.

Reasonable or excessive?



The RBA first introduced regulations concerning surcharging in 2003, in theory to support competition and efficiency in the payments system. Merchants could surcharge for all payment methods, including cash and cheques, however there had to be at least one non-surcharged method of payment.

These regulations were modified in 2013 and new rules limited the amount of any surcharge to the ‘reasonable’ cost of card acceptance to the merchant. The RBA introduced further new rules in 2016, with a narrower and more precise definition of permitted card acceptance costs.

The ACCC was then charged with the responsibility to enforce the ban on ‘excessive’ surcharging – an action many had argued for back in 2003.

The 2016 regulations were in part a response to the submissions from the wider public to the 2014 Financial System Inquiry (FSI). More than 5,000 of the circa 6,500 final submissions to the FSI were concerned with surcharging on card payments (although there was a concerted campaign on this front).

It was hence no surprise that the Government in 2015 announced it would crack down on ‘excessive’ card surcharges. The ACCC has since then had several successful enforcement actions, both via infringement notices and litigation, against merchants who were surcharging ‘excessively’.

READ MORE – Why Bother Surcharging?
Steve Worthington is a Visiting Professor at the Business Research Institute
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