Will Credit Card Surcharges Be Banned?

As consumers continue shifting towards digital payments, the debate around credit card surcharges is gaining momentum. While countries like the United Kingdom and parts of Europe have already banned surcharges on consumer credit and debit cards, Australia is now considering whether to follow suit.

With regulatory reviews underway and a ban on debit card surcharges already set for 2026, businesses may soon need to rethink how they manage payment processing costs. But is the issue as simple as it seems?

Why Is There a Push to Ban Surcharges?

The Reserve Bank of Australia (RBA) launched a review in October 2024 into Merchant Card Payment Costs and Surcharging to assess whether current regulations remain fit for purpose. This review aims to:

• Increase transparency around transaction fees and surcharges.
• Reduce costs for both merchants and consumers.
•  Determine whether current regulations adequately reflect the changing digital payments landscape.

Large financial institutions and credit card providers have thrown their support behind changes. The Australian Banking Association (ABA) submitted to the RBA that, “Consumers should never be surcharged for bundled costs like POS systems, business software products, or other business incentives.”

In general, customers dislike surcharges and would be happy to see them eliminated, as they represent a personal loss of value in much the same way a discount is perceived as a personal gain. This sentiment is supported by major credit card providers and financial institutions. For instance, the Australian Banking Association (ABA) stated in its submission to the RBA review, “The current surcharging framework is clearly not working and requires targeted reform. Consumers should never be surcharged for bundled costs like POS systems, business software products, or other business incentives.” The mention of “business incentives” refers to situations where payment service providers charge higher fees to offer merchants perks such as reward points or other benefits.

The push for reform accelerated when the Australian Government announced it would ban debit card surcharges from 1 January 2026, pending the outcome of the RBA’s review later this year.

If surcharges are banned for some or all payment methods, businesses currently charging fees will have to:

• Absorb merchant fees, potentially reducing margins.
• Increase pricing to factor in payment processing costs.

For many small businesses, the issue isn’t just about fees—it’s about the cost of accepting the most common payment methods. Unlike cash transactions, card payments incur processing costs that businesses must manage.

Small Businesses Pay 3X More in Card Fees

While Australia’s card payment fees are lower than those in the United States (where rates are nearly double those of Australia), we pay a higher rate than in some other jurisdictions such as Europe. The RBA have flagged there might be room to improve this by capping interchange fees and/or introducing competition into how debit card payments are routed (allowing systems to default to the ‘least cost’ option available).

In Australia, it is not a level playing field when it comes to card transaction fees with a large disparity between fees paid by small and large merchants:

• Small merchants pay, on average, three times more in transaction fees than large businesses.
• Larger retailers benefit from wholesale fees and ‘strategic’ interchange rates, while small businesses often lack bargaining power.
• The cost of accepting card payments varies significantly, ranging from less than 1% to over 2% of the transaction value.

How Australians Use Cards and Digital Transactions

The shift to digital is undeniable, with contactless and mobile wallet payments becoming the norm.

The RBA generally supports allowing surcharges, arguing that they help signal to consumers which payment methods offer better value and allow market forces to influence the dominance of payment providers. While this might hold true for large purchases, does it really apply when we’re quickly tapping our phones or watches to pay for a morning coffee?

Cards—including debit, prepaid, credit, and charge cards—remain the most frequently used payment method in Australia, accounting for three-quarters of all consumer payments in 2022.

Digital Payment Adoption Over Time

According to the Australian Banking Association:

• Contactless payments now account for 95% of in-person card transactions(up from 8% in 2010).
• Online payments, as a share of retail payments, have grown from 7% in 2010 to 18% in 2022.
• Mobile wallet (Apple Pay, Google Pay, etc.,) usage has grown from 1% of point-of-sale payments in 2016 to 44% in October 2024.
• Buy Now, Pay Later (BNPL) services, once niche, virtually unknown 8 years ago, are now used by nearly one-third of Australians.

With cards accounting for 75% of all consumer payments, surcharges remain a critical discussion point for both businesses and consumers.

When Are Surcharges Allowed?

Under the current framework:

• Surcharges must reflect actual costs –A business can only charge a surcharge for paying by card/digital wallet, but the surcharge must not be more than what it costs the business to use that payment type. These costs, measured over a 12 month period, can include gateway costs, terminal costs paid to a provider, and fraud prevention etc., if they relate directly to the card type being surcharged.
  • Payment suppliers must provide merchants with a statement at least every 12 months that includes the business’s average percentage cost of accepting each payment type.
• Businesses must justify the surcharge amount – If a business charges a payment surcharge, it must be able to justify how the surcharge fee was calculated.
• If surcharges apply across multiple payment types regardless of type, the fee cannot exceed the lowest surcharge set for a single method. If the surcharge applies to all payment types regardless of type, it must not be more than the lowest surcharge set for a single payment type.
• If a customer has no surcharge-free payment option, the surcharge must be included in the displayed price. – If your customer cannot use cash or another payment method that does not incur a surcharge, then the price displayed must include the surcharge.

To address these disparities, the RBA is exploring ways to lower costs, including:

1. Capping interchange fees (fees paid between banks for card transactions).
2. Introducing competition in debit card payment routing, allowing businesses to default to the cheapest available processing option.

Average Card Fees in Australia 

In the days before the RBA’s surcharge standard, it was not uncommon for businesses to apply a flat 3% surcharge.

Excessive surcharges on Eftpos, Visa, and Mastercard transactions are already banned. However, the Australian Competition and Consumer Commission (ACCC) reported a surge in complaints, with nearly 2,500 reports in just 18 months since early 2023.

Do Businesses Pay Tax on Surcharges?

Yes. If a business charges GST on goods or services, GST also applies to surcharge payments. This is an important consideration for businesses that factor surcharges into pricing structures.

Looking Ahead: What Should Businesses Expect?

If further credit card surcharge bans are implemented, businesses may need to:

1. Reassess pricing models to account for processing costs.
2. Explore least-cost routing options to reduce transaction fees.
3.  Stay informed on regulatory changes and compliance requirements.

The RBA review is expected to bring major shifts in how businesses manage payment costs. If you’re unsure how these changes might impact you, our team at Modoras is here to help.

Get in touch today to discuss how payment system changes could affect your business.