The ban on card surcharges comes into effect later this year, hailed a great relief for consumers, but small business will make them pay, and big banks will win. Michael Sainsbury reports.
When the Reserve Bank of Australia announced last week that it would ban all debit and credit card surcharges from October, RBA governor Michele Bullock framed it as overdue consumer relief.
What she did not say is that every small business in Australia that can no longer pass on card costs transparently will now build them into prices instead, feeding directly into the inflation measure Bullock herself is charged with taming.
Given that the board is already navigating fraught decisions on rate cuts amid sticky inflation and the ongoing oil shock, those price rises spread across hundreds of thousands of businesses could tighten the calculations on rates in exactly the wrong direction for every household with a mortgage.
The RBA has poured fuel onto the inflation fire it is supposed to extinguish.
“This was their opportunity to make real reform to the payments system, and they’ve done nothing. It’s an absolute joke,” Brad Kelly, co-founder of the Independent Payments Forum, told MWM. “It’s inflationary. It discriminates against small business and firmly entrenches the cross-subsidy of small business to big business.
“The reality is that businesses are going to put up their fees — for your $10 coffee and cake it won’t be $10.16, it’ll be $10.50 or $11.”
There is also a serious question about whether the RBA was acting independently.
In October 2024, Treasurer Jim Chalmers publicly threatened to legislate a ban on debit card surcharges if the RBA’s review did not deliver one. The central bank duly delivered and then some, extending the ban to credit cards.
The final package tracks so closely to what Chalmers wanted that the notion of an arm’s-length regulatory determination strains credibility.
Follow the money
Federal Labor MPs dutifully sang from Chalmers’ song sheet, with PM Anthony Albanese leading the way on social media: “Card surcharges will be banned from October, saving you money every time you tap”.
Chalmers claimed consumers will save $1.6B.
The small business verdict was the opposite.
Wes Lambert, CEO of the Australian Restaurant and Cafe Association, said: “The RBA’s decision beggars belief. They couldn’t explain how this would lower costs for small business, which was one of their stated mandates.”
“We expect that on the first of October, restaurants and cafes around the country will be forced to put up their menu prices. And, actually, the RBA has said that this is more transparent for consumers when they can see the higher price all in one place.”
Theo Fokkare, CEO of the Australian Association of Convenience Stores, whose members deal in high-margin, low-volume transactions where every basis point matters, said the RBA had simply capitulated to political pressure.
“They have completely ignored the feedback from people who are actually experiencing this failed payment system, and all they’ve done is give in to political pressure and wrap it up in a supposed cost-of-living saving for consumers, but ultimately, the price of everything will go up, even for those using cash. The reality is, any merchant fees that can’t be surcharged will now be built into the cost. So ultimately everyone pays more for everything.”
The real winners are the tax-minimising US card schemes Visa and Mastercard, and Australia’s taxpayer-backed banking oligopoly. Lambert noted it was “general consensus around the room from many stakeholders that
ultimately the banks and the payment service providers were the overall winners of the day.
To understand who wins and who loses, it helps to understand how Australia’s $6B-plus payments machine works.
Interchange fees paid by acquirers to card-issuing banks amount to about $1.5B annually, around 65% of the cost of credit card transactions. Net scheme fees paid to networks such as Visa, Mastercard and EFTPOS are about $1.8B per year, mostly borne by acquirers and passed to merchants.
The remainder, roughly $2.4–2.7B, reflects acquirer and payment service provider margins.
Interchange caps will reduce the amount merchants pay banks by around $910 million per year, money that has often subsidised loyalty programs. The banks take the biggest haircut on paper, but the Commonwealth Bank flagged changes to rewards programs within hours of the announcement.
Visa and Mastercard, operating on profit margins around 50%, will benefit from the surge of card transactions a surcharge ban generates, as every business previously steering customers toward cash routes – or EFTPOS – can no longer show via surcharges that card is more expensive. This means that they are now likely to simply default to card scheme (Visa/Mastercard) payments.
The surcharge mess
The surcharging framework was designed, implemented and repeatedly defended by the RBA across more than two decades. Bullock joined the bank’s Payments Policy Department as Chief Manager in 1998, was promoted to Head of Payments Policy in 2007, and held that role through the 2008 review that declared the framework sound.
As recently as December 2023, Bullock was still defending surcharging at the Australian Payments Network Summit, arguing that “the right to surcharge provides an important incentive for payment schemes to keep their fees low.”
Within two years, the framework built on that principle was abandoned entirely.
Blended pricing was the mechanism used to game it. Payment service providers such as Square, Tyro, Zeller and Smartpay offered merchants a single flat rate covering all card types, embedding their margin in the blend.
A customer paying with a basic debit card whose real interchange cost might be 0.2% was charged the same surcharge as if they had paid with the most expensive premium card.
The RBA framework permitted it, and the new regime leaves it intact. The RBA’s conclusions paper confirmed that payment service providers “would also retain the ability to offer a variety of pricing plans, including those that blend debit and credit pricing together.”
Two holes in the package reveal the limits of what a weak regulator delivers when facing down a powerful oligopoly and two of the world’s most profitable card schemes.
A gift to the banks
The first is the commercial cards carve-out, a gift to the major banks almost entirely ignored in mainstream coverage. The RBA is not changing the interchange fee cap on commercial card transactions, which will remain at 0.8%. But the 0.5% weighted-average benchmark will be abolished from October 1,
meaning average interchange on business card transactions could actually increase.
The RBA’s own July 2025 consultation paper warned this risked issuers heavily promoting more expensive commercial card products — precisely what industry sources say the major banks are now preparing to do.
The federal government is itself the country’s single largest commercial card user. The $3B whole-of-government travel and procurement account is held exclusively by NAB, running almost entirely on Visa commercial cards at 0.8%. As Kelly told MWM:
“Australia’s government is the single biggest culprit in the use of commercial card interchange. Every time a public servant books a flight or stays in a hotel on their NAB corporate card, the merchant on the other end is copping 80 basis points. The government’s reform has actually only given NAB a sugar hit and caused Australian merchants to pay more.”
The second failure is the refusal to mandate least-cost routing, which allows merchants to direct debit transactions through the cheaper EFTPOS network rather than Visa or Mastercard rails.
One Tasmanian small business saved more than $100,000 in a single year once it was implemented. Fokkare was clear about what genuine reform required: “They need to implement dynamic least-cost routing, ban blended rates, and regulate scheme fees charged by Visa and Mastercard. All this consultation for basically nothing — a complete waste of time.”
The surcharge ban will stop the visible bleeding at the checkout, but not the bleeding itself. It will move it into the price of a coffee, a restaurant meal, and a council rates notice — and from there into the inflation data that lands on Michele Bullock’s desk each month, confronting her with the consequences of a reform she both helped design and, two decades later, declared a failure.
Rates up, Dollar down. Reserve Bank diminished by dud review
Michael Sainsbury is a former China correspondent who has lived and worked across North, Southeast and South Asia for 11 years. Now based in regional Australia, he has more than 25 years’ experience writing about business, politics and human rights in Australia and the Indo-Pacific. He has worked for News Corp, Fairfax, Nikkei and a range of independent media outlets and has won multiple awards in Australia and Asia for his reporting. He is a fierce believer in the importance of independent media.