Opinion
Card surcharges are costing us billions, but can they be avoided?
Victoria Devine
Money columnistThough we’ve been slowly weaning ourselves off using physical money for years, it wasn’t until COVID-19 hit and many businesses temporarily stopped accepting notes and coins as an option that we went cold turkey and broke up with cold hard cash once and for all.
While most businesses are back to accepting cash, as consumers, the habit of tapping a debit card, credit card, phone or smartwatch seems to have stuck.
The government estimates that major banks and card providers netted a whopping $4 billion in the past year from Australians, all thanks to surcharges.Credit: Dionne Gain
Today, Australians use cash to pay for just 13 per cent of our transactions. According to the Reserve Bank of Australia, that’s a drop from 27 per cent in 2019.
But the convenience of not having to find an ATM and carry cash with you at all times is starting to cost us dearly. The federal government estimates that major banks and card providers netted a whopping $4 billion in the past year from Australians, all thanks to surcharges. According to Canstar, that’s an increase of $400 million from the year before.
It’s an experience you and I both know so well. You’re ordering a coffee or buying something to eat, and the server tells you the total price of your bill.
Except when it comes time to tap your card on the payment screen, you notice there’s an extra $0.16 or $0.74 or some other random amount that wasn’t quoted or accounted for. It’s annoying, sure, but on its own it doesn’t seem like that much extra.
While it might be tempting to direct frustrations about surcharges towards businesses, we should actually be looking at the big banks.
The positive is that surcharges are capped at between 0.5 and 1.5 per cent of a total transaction price, with the variation depending on what type of card you use. There is also a ban on businesses setting excessive surcharge fees (although some businesses try and ignore this rule) and where businesses don’t accept cash and card is the only payment option, a surcharge cannot apply (some businesses also try to ignore this rule, and if they do, I highly recommend taking your business elsewhere).
But the negative is that collectively throughout the year, these tiny little one-off surcharges are adding up to an average of $140 per person per year. As Labor MP Jerome Laxale pointed out when discussing the issue last week, “I question why we are being charged fees at all. Cash is fee-free to use, so should digital.”
If you’re wondering why some businesses pass on surcharges to customers and others don’t, there are a couple of reasons. The first thing to understand is where the money from a surcharge goes once it leaves your account.
A little bit goes to the business’s bank account, a little bit goes to the payment network (usually Mastercard or Visa), and the majority either goes to the payment platform being used or to your bank for processing the transaction in the first place.
While it might be tempting to direct frustrations about surcharges to the people adding 1.5 per cent to our sandwich, we should actually be looking towards the institutions we bank with and directing our questions (and venting any lingering annoyance) towards them.
To many people, $140 a year isn’t all that much. But that $140, which I’d like to remind you is just the average, comes on top of the annual banking fees and credit card fees you’re already paying.
In the 2021-22 financial year alone, Australians paid $3.2 billion in banking fees. And just like that, we’re at $7.2 billion for banks, bringing your annual spend closer to an average of $250 per person, just in banking fees alone.
The good news is that the RBA is set to review merchant costs and surcharging, and as part of this will consider if Australia should follow the UK and many European nations by banning surcharges entirely.
But it’s likely to be quite some time before the review makes its findings, hands down its recommendations, and the government introduces any changes. So until then, we’re stuck with surcharges.
Thankfully, there are a number of things you can do as a consumer to reduce your surcharge spending. The first and most obvious is to switch back to using cash (so long as you’re withdrawing cash from an ATM or service provider like the supermarket where there are no associated withdrawal fees).
But if you’re wedded to a cash-free way of living and don’t want to go back, fear not. Instead of tapping a card or using a credit card, you can avoid surcharges by using your debit card and choosing to pay from your cheque or savings account.
There may still be a fee associated, but generally choosing EFTPOS, the domestic debit scheme, over international models like Visa and Mastercard, will see you pay a smaller surcharge, especially on more expensive transactions.
But perhaps the most realistic and practical option for now, at least until we know if surcharges are here to stay or will be banned entirely following the RBA’s review, is to budget accordingly and allow for surcharges in your spending.
Using the national average as a guide, surcharges work out to be an additional $2.70 per week. Sure, it’s not much, but it all adds up and in allocating those extra dollars, you’re far more likely to stay on track and end the week still in the green. Which, at the end of the day, is what good budgeting and healthy spending habits are all about.
Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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