Questions & Answers Payment Card Surcharging – March 2013

It is the Reserve Bank's expectation that merchant service fees – that is, the fees that a merchant pays to its financial institution (or scheme in the case of American Express and Diners Club) for providing card acceptance services – will typically represent the bulk of the reasonable cost of card acceptance for merchants, though it will be possible for merchants to include some additional acceptance costs. A Guidance Note issued by the Reserve Bank outlines its view of other costs that might appropriately be included if the merchant chooses to do so.

The cost of accepting card payments can vary significantly between different merchants, depending on factors such as their size, the industry they operate in and the type of cards generally presented. This means that it will often be difficult for a consumer to determine with confidence that a surcharge is excessive. The changes will largely rely on card schemes and financial institutions to determine this in cooperation with merchants.

The Reserve Bank believes that in most cases the bulk of the cost of accepting cards will be the merchant service fee charged to the merchant by the merchant's financial institution (or scheme in the case of American Express and Diners Club). The Reserve Bank publishes quarterly data on average merchant service fees for credit and charge cards in Statistical Table C3. As at the December quarter of 2012, the average merchant service fee for MasterCard and Visa transactions was 0.8 per cent, for American Express it was 1.8 per cent and for Diners Club it was 2.1 per cent.

However, consumers should note that in general large merchants are likely to face merchant service fees that are lower than average. Small merchants – which may not benefit from ‘strategic’ scheme interchange rates – are likely to face fees that are higher than average, sometimes significantly higher. Some specific sectors – for instance supermarkets, service stations and educational institutions – are likely to face lower merchant service fees than other sectors. In addition, the cost of accepting foreign-issued and corporate cards tends to be higher than other card types, so merchants that receive a large proportion of cards of this type may have higher acceptance costs. Finally, the cost to a merchant will often be higher for ‘platinum’ and other premium cards that typically offer relatively high frequent flyer or other rewards.

If consumers have concerns that a surcharge may be excessive they should raise their concerns with the merchant. If they remain concerned, they should contact either their financial institution or the card schemes represented on their card (e.g. American Express, MasterCard or Visa). This is because the Reserve Bank's recent reforms operate by allowing the card schemes to implement rules that limit a merchant's surcharges to the reasonable cost of acceptance.

Consumers should also consider using a means of payment (perhaps cash, debit card, or electronic funds transfer) that is not surcharged. Consumer protection law requires that if there is not at least one means of payment available that is not surcharged, the minimum surcharge must be built into the advertised price of the good or service. If it is not possible to advertise a single price because, for instance, a different level of surcharge applies to different payment methods, consumers must be advised a surcharge may be payable and the total price, including surcharge, must be quantified prior to payment. In this case the minimum unavoidable surcharge would still need to be included in the price of the good or service. If you have concerns that a merchant is not complying with these rules, you should contact the Australian Competition and Consumer Commission (ACCC).