The Reserve Bank of Australia (RBA) has proposed a comprehensive ban on credit and debit card surcharges, citing feedback from industry stakeholders. The decision follows an initial issues paper released in October, which indicated that a blanket ban would be less costly and less confusing than targeting debit cards alone. This move aims to lower fees and enhance transparency for businesses, potentially saving them around $1.2 billion annually.
Under the new proposal, the RBA plans to reduce the cap on interchange fees paid by businesses to payment service providers, including fintech companies like Square, and banks that supply terminal technology. The RBA estimates that 90 percent of businesses will benefit from these changes. Governor Michele Bullock emphasized the need for a system overhaul, stating, “The payments landscape is always evolving, and it’s critically important that we keep pace to ensure it remains safe, competitive, and efficient.”
Impacts on Credit Card Networks and Issuers
The proposal would require credit card networks such as Visa and Mastercard to disclose the fees they charge, fostering competition and potentially reducing costs for businesses. However, the RBA acknowledges that card issuers could lose approximately $900 million in revenue annually. This loss might prompt issuers to increase credit card fees or reduce reward schemes, such as airline points, to maintain profitability.
“Some issuers may choose to increase cardholder fees or reduce benefits such as rewards points, particularly on credit cards, to boost their profitability in response to reductions in interchange settings,” the RBA noted.
The RBA aims to implement these changes by July 2026, pending the outcome of a consultation period. However, the central bank lacks enforcement powers, meaning legislative action by the government would be necessary to mandate compliance.
Business Community Reactions
The business community has expressed concerns over the proposed ban, arguing that it could lead to higher prices for goods. The RBA, however, downplayed potential inflationary effects, estimating a minor 0.1 percent increase in consumer prices, since only about 10 percent of merchants currently impose payment surcharges.
“In any case, this would only be a very small one-off impact on measured inflation; consumers are already paying these costs via payment surcharges,” the RBA explained.
Businesses would still be allowed to offer discounts for cash payments if the surcharge ban is implemented. The Independent Payments Forum Australia criticized the proposal, claiming it would not sufficiently reduce the financial burden on small businesses and could result in job losses.
“The proposed regulatory options fail small businesses and the local communities they serve. Rather, they benefit big business, big banks, and big offshore companies,” said Bradford Kelly, co-founder of the forum.
Government and Industry Responses
Treasurer Jim Chalmers acknowledged the RBA’s recommendations, stating that the government would consider them alongside broader industry feedback. He noted the declining use of cash and the rise of electronic payments as factors increasing the prevalence of surcharges.
“The RBA’s preliminary view is that surcharging should be removed on debit, prepaid, and credit cards, but this should be complemented with measures that reduce costs for the vast majority of small businesses,” Chalmers said.
Payment service provider Square supported the proposal, highlighting its potential to promote fairness and competition. Marco Lamantia, Square Australia’s executive director, remarked, “A ban on surcharges is the most practical and balanced outcome. It avoids entrenching the power of the big banks, helps level the playing field for all providers, and ensures competition and choice for businesses.”
Looking Ahead
The RBA’s proposal represents a significant shift in Australia’s payment landscape, aiming to enhance transparency and reduce costs for businesses. As the consultation period progresses, stakeholders from various sectors will continue to weigh in on the potential impacts and adjustments needed to ensure a fair and competitive market.
The outcome of this initiative could reshape how Australians pay for goods and services, potentially leading to broader reforms in the financial industry. The government and industry players will need to collaborate closely to address concerns and implement effective measures that benefit both businesses and consumers.
