A Variation to the Surcharging Standards:
Final Reforms and Regulation Impact Statement – June 2012
8. Recommended Option

After considering the various options in light of recent surcharging practices, the Board is of the view that a variation to the surcharging Standards would be in the public interest.[23] It would allow the schemes to address cases where merchants are clearly surcharging at a higher level than is justified for card acceptance, which is a practice that may distort price signals and result in inefficiencies in the relative use of payment methods. At the same time, any modification of the Standards should continue to allow merchants to fully pass on the legitimate costs of accepting cards, thereby ensuring that appropriate price signals can be given to consumers and that proper market disciplines are enabled in negotiations over card acceptance costs between acquirers and merchants. These outcomes are likely to lead to more efficient use of payment instruments, an effect that will be ongoing.

In line with this, the Bank is of the view that allowing a limit based on the reasonable cost of card acceptance (Option 4) would be the most effective way to relax the Standards. Of the options considered, this is the least prescriptive and, as a result, is the option likely to achieve the most efficient outcomes by enabling surcharges to best reflect the costs of card acceptance faced by each individual merchant. In the Bank's view, it is the option that also best balances the interests of users and providers of payment services; indeed, the majority of submissions made to the Bank in the second stage of the consultation process also supported this approach.

In forming these views, the Bank has carefully considered evidence on the extent of excessive and blended surcharging. It recognises the mixed views expressed about the extent of excessive and blended surcharging during its extensive rounds of consultation and that there are insufficient data available to quantify the effect of these practices. However, based on available data, views expressed in consultation and recent similar research undertaken for government agencies (i.e. the CHOICE report commissioned by the New South Wales Department of Fair Trading), the Bank believes that there is sufficient evidence to suggest that such practices are now relatively widespread and that the use of the freedoms provided to merchants by the surcharging reforms is no longer entirely in line with the original intent of the reforms.

The Bank has also considered possible implementation and compliance costs related to the relaxation of the Standards. It recognises that these costs are also difficult to quantify, but it expects these to be quite small in the absence of disputes over the level of surcharging. Initially, acquirers would be obliged to notify merchants of the change in the Standards and any changes in scheme rules or contract terms, and merchants that are surcharging above their costs of card acceptance would be required to adjust their surcharges. There is no reason to expect that these costs would be higher for smaller merchants than for larger merchants and, in fact, the proportion of smaller merchants that impose a surcharge is lower than the proportion of larger merchants, according to East & Partners' data. Indeed, to the extent that the merchant is already appropriately recovering the reasonable cost of card acceptance (or is not surcharging at all) there is likely to be little cost of compliance for the merchant.

The Bank recognises, however, that there are likely to be additional costs where disputes arise. The extent of these costs, though, is difficult to measure. In particular, it will depend on the approaches adopted by the card schemes (in establishing their rules), as well as how actively the merchant and the acquirer pursue the dispute; they will presumably weigh their own costs and benefits of doing so. At a minimum, there would be costs involved in the time taken for merchants and acquirers to negotiate over the pricing to the merchant and the level of the surcharge. It is recognised that such negotiations may have a greater effect on smaller merchants because they tend to have fewer resources or specialist personnel to deal with such negotiations. At the same time, the Bank's understanding is that acquirer pricing to smaller merchants, in general, tends to be simpler than that of larger merchants, suggesting that disputes may be less likely.

As noted previously, the Bank believes that publication of a guidance note that clarifies the constituents of reasonable costs may assist in keeping both compliance costs and the costs of disputes in check. As mentioned above, the Bank will also be monitoring the implementation closely for any indication that the approach is imposing unnecessary costs on merchants and acquirers.

While the Bank recognises that it cannot precisely measure the benefits and costs involved with varying the surcharging Standards, it notes that most of the compliance costs are likely to occur in the early stages of the variations coming into effect as merchants and acquirers adapt to any changes in scheme rules. However, the benefits that flow from improved price signals and thereby more efficient payment choices are likely to be ongoing. The Bank is, therefore, satisfied that, over the longer term, the variations will benefit society as a whole.


As previously discussed, the meaning of the public interest, as set out in section 8 of the Payment Systems (Regulation) Act, involves the Bank having regard to the desirability of payment systems being: financially safe for use by participants, efficient and competitive; and not materially causing or contributing to increased risk to the financial system. The Bank may also have regard to other matters that it considers are relevant. [23]