Card Charges: What They Are, How They Work

Some businesses absorb the costs of offering electronic payments into their overall product or service pricing—particularly larger retailers and grocery chains. But it’s also legal for businesses to add a surcharge to cover their costs when you pay with a credit, debit or prepaid card.

Surcharges are generally charged as a percentage of the purchase price, but it can also be a flat fee. Regardless of how a business applies it, by law the surcharge you pay should reflect the merchant’s actual costs to enable the transaction.
The costs to a business to enable electronic payments will vary, depending on:

• The bank or payment processing provider they use;
• Whether the purchase is in-person or online; and
• The card network—e.g., eftpos, Mastercard, Visa.

Using a debit card in-person generally attracts the lowest transaction costs, especially if you insert or swipe your card rather than use a tap-and-go method or mobile wallet. That’s because most ‘contactless’ transactions are currently processed by Mastercard or Visa by default, which is more expensive than Eftpos.

Average Card Charges in Australia

The Reserve Bank of Australia says the average merchant costs for transactions in Australia are:

Debit cards

• 0.3% of the value for Eftpos transactions.
• 0.5% of the value for Mastercard and Visa transactions.

Credit cards

• 0.9% of the value for Mastercard and Visa transactions.
• 1.3% of the value for American Express transactions.
• 1.7% of the value for Diners Club transactions.

Businesses can’t legally charge excessive surcharge fees when you use eftpos, MasterCard or Visa payment methods. They need to abide by rules about how surcharges can be applied set out by the Australian Competition and Consumer Commission, such as:

• Businesses can only recoup their costs for offering a specific card payment type.
• The business must be able to prove the costs they used to calculate a surcharge.
• They need to display surcharge amounts in a prominent way.

In particular, if a business is cashless and your only payment option includes a surcharge—they need to explicitly include the surcharge dollar amount in their listed prices.

The ban on excessive surcharges does not apply to BPAY, PayPal, Diners Club, American Express cards issued directly by American Express, or taxi fares.

How To Complain About Excessive Card Surcharges

Unfortunately, not all businesses do the right thing. If you think you’ve been charged an excessive surcharge, you should first complain to the business directly to see if you can get satisfaction or at least an explanation of the cost.

If you want to escalate the matter, try your state’s fair trading agency or report to the ACCC.

Note the ACCC doesn’t intervene in individual disputes, but investigates business practices more broadly and can issue fines where breaches are identified. In 2019, Europcar was forced to pay $350,000 in penalties for charging excessive surcharge fees to more than 63,000 customers.

Card Charges Differ From Public Holiday Surcharges and Service Fees

It’s important to distinguish between card surcharges and general surcharges that businesses may charge on weekends or public holidays. Weekend and public holiday surcharges help your local cafe cover the extra cost of paying their staff penalty rates—and as long as these surcharges are prominently displayed to customers on the menu or on signage, they’re acceptable.

‘Service fees’ are more mysterious as they can cover a range of costs unique to a business, as long as they’re unrelated to payment costs. Keep in mind that businesses can set their pricing as they see fit, but the price shouldn’t be a surprise. All the costs you can expect to pay should be clearly and accurately conveyed at the start of the purchasing process.

Card networks get a cut of every electronic transaction, paid by both the bank that issued you your card, and the merchant’s bank. On top of the actual fees to access these networks, banks and other payment processors that work with merchants typically add a margin to cover their service costs and for things like providing point-of-sale devices and software.

Regardless of the underlying costs of transactions—whatever the merchant pays to access services is what’s used to determine surcharges you’ll pay when you buy using a card.

Australian payments industry expert Brad Kelly said some banks and other payment processors are “making a killing on merchant fees” as they’re able to cross-subsidise Visa and MasterCard transactions while accessing least-cost routing (LCR) across a higher volume of eftpos transactions.

LCR was introduced by the Reserve Bank of Australia after a review into payment regulation in 2019-20, in an effort to bring costs down for merchants. LCR gives merchants the choice to process contactless and online debit card transactions via the available card network that costs them the least to accept (with mobile wallets to be included in future).

The take up of LCR however, has been low—with little incentive for banks and other providers to promote it. Kelly says that instead of passing on savings to merchants, some providers offer comparatively high flat fees and keep the profits made on these low-cost transactions.

“Ultimately, the consumer pays through higher prices,” he said.

RBA Governor Michelle Bullock said in late 2023 that formal regulation may be needed to ensure banks and service providers “deliver the full benefits of LCR to businesses”. Bullock said the industry players “can all do a lot better” and she’d want to see around 80% of businesses with LCR enabled to avoid a mandate.

There are a few ways to reduce surcharge costs on your purchases, including:

• Paying with cash (provided you’re not paying ATM fees to withdraw your cash)
• Choosing to insert or swipe your card to access the eftpos network, rather than tap-and-go or using a digital wallet like Apple Pay or Google Pay.
• Prioritising businesses that don’t charge card surcharges.

Unfortunately, smaller businesses—like your local cafe or pub—are more likely to add a fee to electronic payments because they don’t have the economies of scale required to absorb all the costs of offering a wide range of payment methods for your convenience.