The excessive surcharging ban has applied to large businesses since September last year and now extends to all businesses that are either based in Australia or use an Australian bank.
The ban restricts the amount a business can charge customers for using an EFTPOS (debit and prepaid), MasterCard (credit, debit and prepaid), Visa (credit, debit and prepaid) and American Express cards issued by Australian banks.
A surcharge will be considered excessive where it exceeds the permitted cost of acceptance as defined by the Reserve Bank of Australia, and the ban is enforceable by the ACCC.
“Businesses can now only surcharge what it actually costs them to process card payments, including bank fees and terminal costs. For example, if a business’s cost of acceptance for Visa Credit is 1.5 per cent, consumers can only be charged a surcharge of 1.5 per cent on payments made using a Visa credit card,” ACCC Deputy Chair Dr Michael Schaper said.
“Our message to business is that you are not allowed to add on any of your own internal costs when calculating what surcharge you will charge customers. The only costs businesses can include are external costs charged to you by your financial provider.”
If businesses want to set a single surcharge across multiple payment methods, the surcharge must be set at the level of the lowest cost method, not an average. For example, if a business’s cost of acceptance for Visa Debit is 1 per cent, for Visa Credit is 1.5 per cent, and for American Express is 2.5 per cent, the single surcharge would be 1 per cent as that is the lowest of all payment methods”.
Dr Schaper advised business that want to set a single surcharge regardless of the type of card their customers use that “it must be the lowest of all the payment methods”. She explained, “You can’t use an average of all payment methods or you will land yourself in trouble.”
Businesses should have received merchant statements from their financial institutions in July setting out their cost of acceptance for each payment method.
The RBA indicated as a guide that the costs to merchants of accepting payment by debit cards is in the order of 0.5 per cent, by credit card 1-1.5 per cent and for American Express cards around 2-3 per cent. The ACCC has found that some merchants have incurred higher costs than these but any surcharge level imposed by merchants cannot be higher than the costs incurred by them for accepting that payment method.
“If businesses are unsure about their cost of acceptance, they should contact their financial institutions,” Dr Schaper said.
Payment types that are not covered by the ban include BPAY, PayPal, Diners Club cards, American Express cards issued directly by American Express, cash and cheques.
Christopher Zinn, the consumer advocate who spearheaded last year’s national Surcharge Free Movement, told Dynamic Business that while the excessive surcharge ban is positive, small businesses that stop surcharging altogether will begin to gain a competitive advantage.
“It boils down to the issue of customer service,” he said. “The cost of accepting cards has gone down due to the regulation of the interchange fee. Plus, the number of consumers who make purchase with small business using something other than cash is increasing. In fact, the Australian Payments Association found that 3 in 4 face-to-face transactions are done by ‘tap and go’, so we’re obviously heading towards a cashless society. Also, numerous survey have indicated consumers do not like card surcharges”
“With the decline of cash and the declining cost of accepting card, it’s a good idea for businesses to fold the cost of accepting card payments into their prices in the same way they would with, say, electricity. If that means nudging up prices marginally, so be it. If you have a small business in an area where there’s plenty of competition, it’s not going to take long for businesses that don’t surcharge and have signage to indicate they are loud and proud about this to make a competitive play. This puts the heat on those businesses that continue to surcharge.
Related: Small retailers urged to trial not surcharging ahead of next year’s ban on excessive fees, Retailers urged to stop ‘harmful’ surcharges and Small businesses urged to prepare now for forthcoming excessive payment surcharge ban.