The hidden cost of the Australian card surcharge ban

Small businesses are fearful they will be the biggest losers under a merchant card payments overhaul that will prohibit Australian businesses from passing on surcharges to customers who use credit or debit cards.

From 1 October 2026, under Reserve Bank of Australia (RBA) reforms, businesses will no longer be allowed to add checkout fees — typically in the range of 0.25 per cent to 2 per cent depending on the size of the business — for debit, credit and prepaid card payments on EFTPOS, Mastercard and Visa networks. 

All costs must be built into upfront pricing as part of a policy designed to address frustration over “hidden fees” of about A$1.6 billion annually.

Card surcharging started more than 20 years ago to encourage consumers to use lower-cost payment methods such as cash or EFTPOS. However, RBA reviews have found that declining cash use and widespread flat card surcharges mean the surcharging framework no longer changes consumer behaviour.

Yasmin Coe FCPA, owner of Sweet Pea & Poppy, an artisan chocolate business in New South Wales and a CPA Australia Australian Capital Territory divisional council member, believes the reforms will disproportionately hurt small businesses, many of which already have modest margins. 

“It is an appalling approach to public policy to make the small business community bear the brunt of the costs,” Coe says.

Businesses will also have to renegotiate card fees with powerful payment providers, a task that Coe says is beyond the capacity of most small business owners. “The better approach would have been for the RBA to use the new policy and its powers to negotiate directly with the card providers.”

The impact of credit card surcharge legislation on Australian SMEs

The reforms highlight a broader policy tension: simplifying payments and protecting consumers versus redistributing costs across the payments system.

Recognising that businesses will still face genuine payment processing costs, the RBA has combined the surcharge ban with lower interchange fee caps. It will reduce the cap on domestic interchange fees for credit cards, which are paid by merchants, from 0.8 per cent to 0.3 per cent of the value of the transaction.

A new cap will also apply to foreign-issued card transactions from April 2027. The RBA argues that these measures will significantly reduce merchants’ payment costs.

Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Lynda McAlary-Smith has pledged to support and educate small businesses and consumers during the transition, including with messaging around the reforms. 

For instance, she is concerned that some consumers may think that weekend and public holiday trading surcharges in the hospitality sector (to cover penalty rates) are also outlawed, which is not the case.

“There is the potential, particularly in an environment where there are increasing levels of aggression towards retail and hospitality staff, for a customer to look at a menu and say, ‘Well, you are charging me 15 per cent more on a Sunday — you are not allowed to do that’. And it is a 15-year-old in their first job who is dealing with that scenario,” McAlary-Smith says.

 “So, there is a whole range of things that smaller enterprises will need to navigate through this transition period.”

What about payment providers?

For its part, the Australian Payments Network (AusPayNet) — an industry body representing more than 160 members — believes the evidence largely suggests that Australia’s payments system is functioning well. 

“Merchant service fees have declined consistently over the past decade, despite rising investment in security and reliability,” CEO Andy White says. 

“Operational resilience remains very high, and innovation continues to give consumers and merchants a growing range of payment options. Any regulatory settings need to preserve that, not inhibit it.”

 

"It is not a regulatory change alone; it is an opportunity for businesses to review their pricing, understand the costs associated with card payments, and adapt and prepare themselves so they are in a stronger position when the new rules take effect."

 

White says AusPayNet supports the RBA’s decision to remove surcharging across all designated card networks, not only debit cards. However, AusPayNet has expressed concerns that some payment service providers, such as digital wallet providers and buy now, pay later (BNPL) firms, could fall outside the new regulatory requirements. 

The sequencing of reforms remains a concern for members, White continues, given that the card-specific reforms have proceeded ahead of the RBA’s wider review of payments system regulation, which has been subject to consultation.

“That consultation specifically seeks views on the costs associated with digital wallet transactions, a significant and growing component of card payment processing. Similarly, it looks at whether there are competition, efficiency and financial safety issues relating to BNPL.” 

Such a wide review, White says, should reduce the risk of competitive distortions and regulatory arbitrage, where activity could shift towards less regulated participants.

Conduct a business health check

David De Alwis CPA, an accountant and business strategist, says that while consumers will welcome the surcharge changes because “pricing becomes much clearer”, most businesses will be resigned to having to absorb card payment fees.

De Alwis, who is also a CPA Australia Northern Territory divisional council member, suggests that the new rules present a chance for all businesses to do a “health check” on payment approaches and other business policies with the support of trusted advisers such as accountants. 

 

"Merchant service fees have declined consistently over the past decade, despite rising investment in security and reliability. Operational resilience remains very high, and innovation continues to give consumers and merchants a growing range of payment options. Any regulatory settings need to preserve that, not inhibit it."

 

“It is not a regulatory change alone; it is an opportunity for businesses to review their pricing, understand the costs associated with card payments, and adapt and prepare themselves so they are in a stronger position when the new rules take effect.”

A “cross-functional approach” will be required, according to De Alwis, whereby leadership teams weigh up pricing policies, sales and marketing teams update their menus, catalogues and other sales materials, and IT teams fine-tune back-end systems related to payments. He also recommends exploring technology — including AI tools — to improve productivity and offset rising costs.  

Communication is key

At AusPayNet, White notes that system participants contribute to fraud-prevention capabilities that protect consumers and merchants, infrastructure that maintains consistently high service availability, as well as continuous enhancement of payment services. 

“Raw fee comparisons, without proper context, can be unhelpful at best and misleading at worst for merchant decision-making.” 

Stakeholder education of merchants and consumers will be crucial to the rollout of the changes, White says. “Better understanding will support more informed policy discussions and better outcomes for everyone in the ecosystem.”

As a regional business operator, Coe is especially concerned about the capacity of the new rules to have “a disproportionate impact on regional communities and regional businesses because they often have less footfall, lower revenue and higher operating costs”.

Consequently, she says the focus must be to understand and respond to the impact of the surcharge arrangements on profit margins.

“Without appropriate margins, you do not have a viable and scalable business,” she says. 

“So, I would suggest that small businesses be aware of how any card payments cost increases will impact them. To know their numbers, to make those increases, but to not be afraid of communicating the reasons for the increase to their community. Be transparent and people will understand.”

How SMEs can prepare for the new surcharge rules

The Australian Small Business and Family Enterprise Ombudsman, Lynda McAlary-Smith, urges small businesses to:

1. Review current payment processing fee arrangements with providers, including any bundling deals, in advance of the 1 October deadline.
2. Ask questions of payments companies and point-of-sale terminal providers to ensure they are getting the best deal for their business. 
3. Be transparent with customers about any price increases, and do not over-attribute any increases to the card surcharge ban if there are other factors contributing to the decision to increase prices. 
4. Embrace e-invoicing where possible to bring greater efficiencies and clarity to pricing, billing and payments.

 

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