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RBA Announces Card Payment Reforms, Including Surcharge Elimination and Reduced Interchange Fees

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RBA Overhauls Card Payment System: Surcharge Elimination and Fee Reductions

The Reserve Bank of Australia (RBA) has introduced significant reforms to the country's card payment system, primarily focusing on the elimination of surcharges on debit, prepaid, and credit card transactions, and a reduction in interchange fees paid by businesses. These changes, aiming to simplify card payments for consumers and enhance value for businesses, are scheduled to take effect on October 1, 2026.

Overview of Reforms

The RBA's reforms comprise three key components designed to reshape Australia's card payment landscape:

1. Surcharge Elimination

Surcharges will be discontinued on payments made via eftpos, Mastercard, and Visa networks. This applies to most credit and debit card payments. American Express is exempt due to its distinct regulatory framework and lack of interchange fees.

2. Interchange Fee Reduction

Caps on interchange fees, which are fees paid by businesses to card-issuing banks, will be lowered. This specifically targets domestic consumer credit and debit cards, with new caps also introduced for foreign-issued cards.

3. Increased Transparency

Eftpos, Mastercard, Visa, and large acquirers will be required to publish their charged fees. This measure aims to foster competition and allow businesses to more easily assess their payment service costs.

Rationale and Timeline

The RBA stated that the previous surcharging system, established over two decades ago, was no longer functioning as intended. Key reasons cited for the change include its complexity, difficulty for consumers to avoid fees, lack of clear disclosure, and the widespread practice of businesses applying uniform surcharge rates across all cards.

RBA Governor Michele Bullock explained that the changes are designed to simplify card payments and improve value for businesses. Treasurer Jim Chalmers supported the decision, noting that it addresses consumer dissatisfaction with unexpected charges and can be implemented without parliamentary action.

The reforms follow 18 months of consultation and are scheduled to take effect on October 1, 2026.

Projected Financial Impact

The RBA has provided estimates regarding the financial effects of these reforms:

The RBA estimates that the elimination of surcharges will save consumers approximately $1.6 billion annually. Consumers currently pay an estimated total of $1.8 billion in card payment surcharges.

For businesses, the reduction in interchange fees is projected to save an estimated $910 million to $1.2 billion per year in reduced transaction costs.

Small businesses, which often incur higher fees, are expected to be an estimated $185 million better off under these changes, with 90 percent seeing benefits. The RBA also estimates that without surcharges, shelf or menu prices may experience a one-off increase of approximately 0.1%.

Details on Interchange Fee Caps

The RBA will implement the following specific changes to interchange fee caps:

  • Domestic Consumer Credit Cards: Capped from 0.8 percent to 0.3 percent.
  • Domestic Commercial Credit Cards: Cap maintained at 0.8 percent.
  • Debit Cards: Capped from 0.2 percent to 0.16 percent.
  • Foreign-Issued Cards: A new cap of 1 percent.

These adjustments are anticipated by the RBA to reduce the generosity of card reward and frequent flyer schemes, which have historically been funded by banks through interchange fees. The RBA identified this as an intended consequence, noting that debit card surcharges had previously subsidized credit card rewards.

Stakeholder Reactions

Reactions to the reforms have been varied among stakeholders.

Support and Positive Views

  • Treasurer Jim Chalmers stated the changes are intended to assist with the cost of living.
  • Small & Family Business Minister Nadia Clandy welcomed the move, suggesting benefits for small and family enterprises due to reduced interchange fees.
  • Fei Gao from the University of Sydney's Business School supported the surcharge removal but emphasized the importance of addressing interchange fees.
  • Smaller non-bank payment service providers, Square and Tyro, expressed support. Tyro's chief executive, Nigel Lee, highlighted that increased transparency would simplify the process for businesses selecting a payment provider.
  • A survey conducted for the RBA's review indicated that most consumers preferred knowing the final price upfront, even if higher, rather than encountering hidden fees. Three out of four respondents believed surcharging was unnecessary and should be discontinued.

Concerns and Opposition

  • Business groups, including the Australian Hotels Association (AHA), Council of Small Business Organisations Australia (COSBOA), and the Australian Restaurant and Cafe Association, have indicated that members may raise prices to offset the loss of surcharge revenue.

  • Stephen Ferguson, CEO of the AHA, asserted that the changes would not reduce consumer costs for items like coffee or beer and described the decision as benefiting "foreign-owned companies like Visa, Mastercard and the big banks" rather than consumers or small businesses.

  • Jessica Kotzen, co-owner of Fuel Espresso, stated she would have no option but to raise menu prices. Matthew Addison, COSBOA chair, commented that without guaranteed lower fees, businesses would absorb costs, leading to higher prices.
  • Fei Gao and Brad Kelly, co-founder of the Independent Payments Forum, highlighted that small businesses often operate on narrow margins, with merchant service fees (1 to 1.2 percent) significantly impacting profitability. Mr. Kelly noted that small businesses are hesitant to raise prices due to concerns about customer retention.

  • Oliver Brown, co-founder of the Big Easy Group, criticized the move, arguing it could reduce a business's profit by 15-20% overnight, necessitating price increases for consumers, and adding to existing pressures such as rising fuel prices, material costs, and wages.

  • Banks and some companies have argued that surcharging is necessary to cover complex payment system costs, including those associated with credit cards and rewards programs. Some banks suggested potential increases in credit card fees and interest rates, alongside reductions in rewards.
  • Yulia Petrenko, a partner at national insolvency firm Jirsch Sutherland, commented that the RBA's decision could negatively impact South Australian businesses, potentially leading to forced price increases or customer migration to competitors, further jeopardizing businesses.

Broader Context and Future Considerations

Approximately 16 percent of businesses currently apply surcharges, while 84 percent do not. Payment processing costs for businesses can vary, ranging from under 0.5 percent for EFTPOS transactions to about 1-1.5 percent for credit cards.

The RBA also plans to initiate a public consultation in mid-2026 to assess the need for regulating other areas of the retail payment system, such as mobile wallets and 'buy now pay later' services. The announcement comes amidst warnings from insolvency firms about an expected rise in insolvencies, particularly in construction, hospitality, and retail sectors, with businesses contending with increasing operating costs, fuel prices, stricter tax office enforcement, and tighter cash flow.