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Each year, billions of card transactions take place around Australia: millions of people tapping, swiping or inserting their cards, phones or smartwatches, their money passing digitally from their accounts. In many cases, there is a little bit extra on top: a surcharge for the privilege of these convenient transactions. Card surcharges are a part of modern life, but buyers are beginning to question how reasonable – and necessary – they actually are.

According to the Reserve Bank of Australia (RBA), Australians now overwhelmingly favour paying by card. In the 2022-23 financial year, an average of around 730 electronic transactions were made per person, compared to around 330 ten years ago. Now, 75 per cent of transactions are made using debit and credit cards. In 2022, just 13 per cent of transactions were made using cash – a far cry from the 69 per cent in 2007.

With paper money, the price displayed is the price you pay – hand over the cash, collect your change, repeat at the next store. But depending on where you shop, and what card you pay with, when paying electronically you could find the merchant adds a few extra cents on to the transaction. This is what is known as a card surcharge.

And as Professor Richard Holden from the University of New South Wales’ Business School explains, they are designed to cover the costs the merchant incurs when they offer card payments as an option for customers.

“[When] you or I go and spend money, the merchant … typically pays the card issuer a charge, and that depends on the type of card used. If it’s a credit card, like a Visa or Mastercard, that attracts a certain fee. If it’s something like an American Express card, it typically attracts a higher fee. If it’s an Eftpos transaction, that typically attracts a much lower fee,” he told LSJ.

The question for the merchant is what they do then: whether they pass the cost on to the consumer, or bear it themselves. There are pros and cons to either decision – and in the background, Holden said, is governing legislation.

What are businesses allowed to do?

Any surcharges charged by a business must be in accordance with the Competition and Conusmer Act. According to an ACCC spokesperson, the surcharge “must not be more than what it costs the business to use that payment type.”

The business must also be able to prove the costs it bases its surcharge on, should it choose to charge a surcharge.

According to the Reserve Bank of Australia (RBA), there are three elements to surcharging:

  • The definition of what is an acceptable cost;
  • Businesses must be provided an annual statement setting out their average cost of accepting card payments;
  • The ACCC has the power to investigate potential excessive surcharges.

The RBA states that surcharging sends a signal to consumers about what it costs to offer different payment methods. Setting standards around what is acceptable creates transparency so that the rules can be enforced.

There are a few ways the ACCC can keep an eye on card surcharges, Holden says. In the case of major players like large business chains, any overcharging would likely appear across all stores, making it easy for the ACCC to identify the issue. Secondly, customers can assist with enforcement as they’re likely to report any instances of overcharging to the ACCC if they experience it. This intelligence is used to identify potential breaches of the Competition and Consumer Act or Australian Consumer Law, prompting investigation by the ACCC.

Thirdly, businesses are subject to severe penalties if they overcharge consumers through surcharges. Fear of being subject to this punishment acts as a deterrent, Holden says.

The ACCC spokesperson confirmed the watchdog has taken action in cases of excess card payment surcharging – including against big names like Nine Entertainment, which was alleged to have overcharged subscribers and advertisers, and car rental company Europcar, which admitted to charging Visa and MasterCard users fees that were higher than the costs the company incurred to accept the card payments.

The ACCC spokesperson said businesses “must display clear and accurate prices, and not mislead consumers about their prices”. This means “being clear and up front about any additional costs that might apply” to transactions, including when additional costs are optional.

Additionally, customers should be given information about surcharges as early as possible during the transaction process “before consumers make their order or purchase”, the spokesperson said.

“Businesses that add extra charges to purchases or ordering methods without adequately disclosing them in advance are at risk of breaching the consumer law,” they added.

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Professor Richard Holden from UNSW's Business School

A cashless society?

With so many transactions being conducted via card these days, debate is raging about the prospect of a cashless society in Australia. Advocates say digital payments are safer and more convenient; but critics suggest that removing the ability for people to pay with cash risks excluding some in the community, including the elderly, those on lower incomes, people with disability, and people living in regional and remote areas.

An ABC report from 2023 notes nearly one in five people aged over 65 is considered a “high cash user” by the RBA, meaning they use cash for 80 per cent of more of in-person transactions. Around seven per cent of Australians overall fall into the high cash use category – and that number has plummeted 50 per cent since 2019.

The COVID-19 pandemic accelerated the move towards a cashless society. Jack Parkin, Digital Economist and Adjunct Fellow at Western Sydney University’s Institute for Culture and Society has written about the impact of warnings about hand hygiene during the pandemic on his willingness to use cash.

But with the emergency phase of the pandemic now over, he has found he has “less and less opportunity” to spend the cash in his wallet, with “more and more businesses … displaying signs that read ‘We Only Accept Contactless Payment’ next to their registers.”

He writes that although digital payments are progressive and convenient, consumers worry about the possibility of their financial data being exposed and misused, or being forced to pay by card when they would prefer to use cash.

Holden agreed that there are people in the community who hold concerns about the digital transaction transition.

“We are moving towards a cashless society and some people don’t like that. And there are issues around how we manage the transition, to accommodate and take care of subgroups of the population, particularly elderly Australians. There are other people who don’t like it for privacy concerns and have a sort of fear of government.

“The reality is, roughly 11 per cent of dollar value transactions these days are done with cash. It’s falling, it continues to fall, it’s going away,” he explained.

In this case, Holden said, there is “a legitimate question” about whether, in a fully cashless world, there should be a mandate of no surcharges in some situations – such as on a baseline lowest-cost digital payment.

“I think there’s an argument for legislation that says… you can’t charge a surcharge on Eftpos, but above that you can charge something related to the difference in your actual cost as a merchant,” Holden said.

But he warned that in that case, the surcharge is likely to “get baked into prices” instead.

“We’re going to pay for it one way or the other,” he said. But having the surcharge added into the cost of an item, rather than added on top of the price when they tap their card or phone, may appear better in the eyes of customers.

How to handle the switch

To reassure customers who have some doubts, Holden said the government could run an education campaign on digital payments.

He has previously suggested a plan to help those who still do their banking via Australia Post to shift to digital methods of payment, by installing digital kiosks at or near Australia Post outlets, staffed by post office staff, that would function similarly to ATMs but allow users to make payments rather than withdraw cash.

This way, people could pay their bills via card in a familiar setting, getting them used to the idea of digital payments. Staff would be on hand to provide any assistance needed in a way that preserves the customer’s privacy, and the payment would be made instantly.

“It would save [the customer] time. It would make it more convenient for them. It would make it safer for them. Walking around with hundreds of dollars of cash on your person is not particularly safe. And it would also of course get people used to the idea [of paying digitally],” Holden said.

Meanwhile, in the midst of the debate about a cashless society, a major Australian cash carrier has found itself in trouble.

Earlier this year Armaguard Australia, which transports money around the country, announced it was on the verge of insolvency – thanks to the huge drop in cash transactions, which made it unprofitable to move notes and coins around Australia. Various organisations, including the Big Four banks, supermarket giants Woolworths and Coles, and Australia Post, banded together to offer a $26 million bailout of the company, but were ultimately knocked back.

Instead, Armaguard’s parent company Linfox announced an injection of $10 million to prop it up while it seeks to get back on its feet. Towards the end of March, the ACCC granted an interim authorisation to the Australian Banking Association and other parties to “discuss, share information, reach agreement on and/or implement… business continuity measures in the event of, or in reasonable anticipation of, a suspension, disruption or exit of Armaguard’s cash-in-transit services”, to make sure cash remained available for banks, businesses and the public.

The decision underscored the seriousness of the issue: although cash use has reduced, it is still needed.

Holden questions whether the government would be able to subsidise Armaguard or other cash handling businesses – but one way or another, “the government’s on the hook for managing the transition” to a cashless society, he said.

And with card transactions increasingly becoming the preferred choice, that transition may be closer than we think.