Why we need a real conversation about card costs and payment surcharges.

Question 1: Are electronic payments just another way that the big-4 banks can take our money? 

No — card payments are not some evil, scurrilous plan by the big-4 banks to take our money.

Trust me when I say I have a healthy aversion to the big-4 banks. In fact at Zeller we’ve built our company to offer an alternative to their outdated products and services. That said, electronic payments are a global phenomenon, rapidly evolving in almost every country so are certainly not the brainchild of Australia's banks. We’re lucky enough to live in a country at the forefront of payment innovation, which is driven by our insatiable appetite for convenience and technology.

Cash is rapidly disappearing. And before people jump up and down chanting “cash is king”, remember the single biggest reason cash is being displaced by electronic payments so rapidly is because the vast majority of merchants and consumers (yes, you and I) love the convenience, simplicity, and speed of electronic payments, and the control it affords us to track and manage our spending.  Far from being the final act in a bank's master plan, the speed at which consumers have adopted electronic payments is the single biggest reason for the rapid decline in cash usage.

 

Question 2: Are Australian businesses getting ‘gouged’ by excessive payment costs?

No. Despite Australia having one of the most innovative and reliable payment systems in the world, we also enjoy some of the lowest payment acceptance costs, too.

If you ever hear someone espousing that the difference between Interchange fees and the rate charged to merchants is proof that there is gouging, it is a guaranteed signal that this person does not understand how payment processing works.

Interchange is a pass-through fee that is paid to the bank who issues that card, and far from the only cost that payment providers incur on behalf of a merchant. In fact, interchange is typically the minority line item amongst various other costs required to process transactions.

There's a huge amount of work that goes into enabling Australian merchants to accept electronic payments safely, securely and as efficiently as possible. Costs in addition to interchange include (yet are not limited to) onboarding, fraud detection, risk management, AML / KYC management, terminal supply and development, 24 / 7 customer support, fast settlement, scheme fees, chargeback fees, and the supply of innovative technology, apps, and real-time reporting dashboards for business owners to manage and control their payments effectively. All of these costs are completely independent of the interchange fee, and are layered on to every transaction.

Despite the current era of high inflationary pressure, the RBA reports that payment costs have been steadily declining over the past 10 years, which is a clear indication that healthy competition is finally having a positive impact. Additionally, blended transaction fees makes it significantly easier for businesses to compare different EFTPOS providers, ensuring they're able to select between a range of providers offering comparable technology, support, and pricing.

 

Question 3: Cash used to be free, so why do we need to pay for card payments?

Anyone who believes cash is free or without direct costs to businesses is misinformed.

Countless studies and analyses show us the costs associated with the use of cash is on par with, or exceeds, those incurred by a business accepting payments electronically. Modern businesses are streamlining, automating, or ultimately removing manual tasks to be in a stronger financial position, and the time and effort required to manage, deposit, secure, and handle cash is incredibly costly. 

The removal of cash reconciliation, through to the benefits of accessing real-time data to better understand business performance; benefits of electronic payments are extensive, yet do come at a cost. With payment processing now an integral part of our national infrastructure, we need to be careful to not drive costs to an unviable level or risk driving out healthy competition, and ongoing investment in payment innovation.

 

Question 4: Are ‘blended’ transaction fees for electronic payments a negative trend?

Prior to the introduction of blended rate transaction fees for digital payments over ten years ago, one of the single biggest frustrations business owners faced was understanding payment acceptance costs.

Historically, banks would provide merchants lengthy statements outlining every different cost being charged, which exacerbated the problem. Along with all the different operating costs, administration fees, terminal rental fees, chargeback fees, interchange fees (the list goes on), this convoluted practice was known as ‘unblended’ pricing, and was completely incomprehensible.

To combat such confusion, a new model emerged where some payment companies started to assess all the different card types a particular business might present, spread out all the operating costs to then calculate and offer what is known as a ‘blended rate’. This single rate vastly simplified the acceptance costs for merchants so they no longer had to be concerned with which card a customer would present, ultimately delivering more predictability in expenses.

Despite popular opinion, the new pricing model has not been forced upon merchants. It was offered as a new and much simpler alternative to the confusing, unblended pricing models. Blended rates were instantly appealing to businesses, so rapidly (and voluntarily) grew in popularity — in fact, 87% of merchants tell us that blended transaction fees is the most important factor they look for when choosing a payment provider. And while unblended pricing models are still available, the blended pricing model is now so popular that today almost every bank and payment provider offers it as a pricing option. The simplicity and affordability that the blended pricing model offers is also expanding the card acceptance network to newer and emerging businesses — over 1 in 3 merchants who sign up for Zeller are doing so to accept card payments for the very first time.  

Perplexingly in recent times there has been a small sector of the payment industry suggesting that Australia reverts back to unblended pricing model to promote lower forms of cost acceptance. This regressive suggestion would be both illogical and strongly against the wishes of the vast majority of Australian small businesses. 

 

Question 5: Is the RBA’s current ban on excessive surcharging working?

In 2003 the RBA set a very clear policy that prohibits surcharges that exceed the “reasonable cost of payment acceptance." Clearly the ban is unambiguously not working.  

Evidence of excessive surcharging is commonplace. From payment providers who simply layer an additional service charge onto another provider’s payment services, to business owners whose surcharge exceeds their payment costs, to payment providers who bundle in unrelated costs such as frequent flyer points at an inflated transaction fee, these are all common examples of excessive surcharging which is commonplace in Australia.

Additionally, many big-4 banks still enable merchants to add a surcharge that exceeds the costs they are being charged. Some bank-issued EFTPOS terminals provide instructions explicitly outlining how to apply a surcharge of up to 15%. I am at a loss as to why this is allowed to continue.

 

Question 6: What should be done about excessive surcharging?

The responsibility to investigate and act on reports of excessive surcharging sits with the ACCC. Given the recent injection of an additional $2.1 million of federal funding I am encouraged to see the ACCC preparing to step up their review of excessive surcharging, yet I’d like to see some immediate additional steps taken:

1. Mandate all payment providers to technically disable the ability for EFTPOS terminals to apply a surcharge above the cost that the merchant is being charged to process payments.
2. Mandate that payments providers display the full cost of the transaction (inclusive of surcharge) on the terminal’s screen prior to the payment being processed
3. Enforce the ban on any additional products, services or benefits (such as frequent flyer points) being bundled into a surcharge .

I know these simple steps can be implemented, because at Zeller we’ve had them in place since we first launched in 2021. I’m confident that these steps would immediately reduce the proliferation of excessive surcharging. 

 

Question 7: Should surcharging be allowed?

So this is the question we are mainly here to debate, as we are all consumers. No one likes paying extra, particularly when it is excessively high or when you are only notified of the surcharge after the transaction has been processed.

The RBA’s original mandate to encourage (or at least allow) surcharging has been incredibly effective in increasing the transparency of card processing costs. A lot of people are calling for a ban on surcharging, yet the reality of such a move would be that payment costs would immediately be absorbed into higher overall costs and again revert to the era of opaque payment costs. While consumers would feel better no longer seeing a surcharge applied, they would still be paying the increased costs, and the industry would no longer have any transparency into payment costs.