Merchant Card Payment Costs and Surcharging – Consultation Paper –
July 2025 Executive Summary

This paper presents the preliminary conclusions of the Payments System Board (PSB) following the public consultation process undertaken after the release of the Merchant Card Payment Costs and Surcharging Issues Paper (the Issues Paper) in October 2024 (RBA 2024b). This paper also includes for consultation some draft standards that would implement the preliminary conclusions, using the powers granted to the Reserve Bank of Australia (RBA) under the Payment Systems (Regulation) Act 1998 (PSRA). The RBA seeks comments on these preliminary conclusions and draft standards, with the expectation that the PSB will reach its final conclusions by the end of 2025.

This Review has benefited from engagement with a range of stakeholders with diverse views on these issues. The PSB has given careful consideration to these views in assessing which regulatory actions would best support the public interest in line with the PSB’s responsibility to promote efficiency, competition and safety in the payments system.

The PSB has reached the view that the surcharging framework, introduced more than two decades ago, is no longer achieving its intended purpose. The RBA’s surcharging framework required the credit, prepaid and debit card networks to remove their ‘no-surcharge’ rules, thereby allowing merchants to apply a surcharge to card transactions. One of the key objectives of surcharging was to provide a price signal to consumers regarding the costs of payments, and incentivise them to choose lower-cost payment methods. However, the framework has become less effective due to a decline in consumers’ cash use, the prevalence of single-rate payment plans among merchants and the difficulty of enforcing surcharging rules.

The PSB recognises that issues associated with card payment costs and surcharging are interconnected. Amendments to the surcharging framework without corresponding regulatory actions to lower card payment costs would simply redistribute costs in the payments system while allowing inefficiencies to remain. Action to lower merchants’ card payment costs is therefore necessary, particularly if merchants’ ability to surcharge consumers for those costs is no longer available. The PSB also recognises the case for addressing the large disparity in card payment costs between small and large merchants, the high costs for Australian merchants accepting international transactions, and the opacity and complexity of pricing across the card payments industry.

The PSB has reached the preliminary policy view that competition and efficiency in the payments system would be enhanced by:

• removing surcharging on all designated debit, prepaid and credit card systems¹
• lowering wholesale card payment costs, particularly for small merchants, by lowering caps on domestic interchange fees and capping the interchange on foreign-card transactions
• increasing the transparency of card payment costs to help payment service providers (PSPs) and merchants compare fees across the market and shop around for better-value payment deals.

Accordingly, the RBA proposes to revoke its prohibition on ‘no-surcharge’ rules for each of the designated card systems. Based on historical experience and arrangements in other jurisdictions, the RBA considers that this would likely be followed by the designated card networks reimposing ‘no-surcharge’ rules.

It is unlikely that the RBA could directly impose an effective ban on surcharging by merchants, as merchants are generally not considered ‘participants’ in the designated card systems under the PSRA. If surcharging continued after the prohibition on ‘no-surcharge’ rules under the RBA’s standard was lifted – which would be counter to the spirit of the proposed policy reforms – the RBA could recommend that the Government legislate a ban on the surcharging of cards of the designated card systems.

Removing surcharging, combined with reductions in interchange fees and greater transparency of payment costs, would:

• make card payments simpler, more transparent and more efficient for consumers and merchants. Consumers are estimated to pay around $1.2 billion in payments surcharges each year. A full removal of surcharges on all designated card networks would reduce broader economic inefficiencies associated with consumers finding it difficult to avoid a surcharge, inadequate merchant disclosure, drip pricing involving added card payment surcharges and the complexity of surcharging rules. This policy would also be easier for market participants to understand and implement than only removing surcharges on debit card payments.
• lower wholesale card payment costs for merchants by around $1.2 billion per year through lowering interchange caps on domestic card transactions and introducing interchange caps on foreign-issued cards. The PSB expects PSPs to pass savings from lower interchange fees on to merchants in full.
• reduce the disparity in card payment costs faced by small and large merchants. Small merchants tend to pay high interchange fees, at or near the current regulatory caps. Lowering these caps would therefore benefit small merchants the most and reduce their cross-subsidisation of large merchants, improving the efficiency of the payments system for the broader economy. Around 90 per cent of small merchants would be better off under the proposed measures than under the current framework.
• improve the ability of merchants to find a better payment plan by increasing the transparency of acquirer pricing and requiring acquirers to provide more information to merchants about their card payment costs. More clear and consistent information about acquirer pricing and merchant card payment costs should increase competition in the market.
• increase competitive pressure between the designated card networks by requiring each network to publish their wholesale fees (interchange and scheme fees), reduce the complexity of these fees and justify any future increases in scheme fees. PSPs would be able to use the published information to negotiate better deals from the card networks and pass on the savings to merchants and consumers.
• reduce the cross-subsidisation of credit cardholders by debit cardholders. Reducing the difference between the interchange caps on debit and credit card transactions would result in a more efficient distribution of those costs between the consumer choosing the payment method and the merchant accepting the payment.
• reduce regulatory complexity and promote a level playing field between regulated card networks and payment methods that are not subject to price regulation. By removing the ability to surcharge for card networks that are already subject to price regulation, these networks will be better able to compete with higher-cost payment methods that do not allow surcharging (such as some ‘buy-now pay-later’ products).
• lower the enforcement and compliance burden for merchants and the Australian Competition and Consumer Commission (ACCC) by removing surcharging. Given the large number of merchants and the complexity of the surcharging rules, enforcement of the current surcharging rules has been difficult.

The PSB has also considered how the removal of surcharging alongside the RBA’s other proposed policy reforms could impact the various users and providers in the card payments ecosystem.

Consumers would benefit from no longer facing surcharges on card payments through regulated networks. Preliminary estimates indicate that consumers would pay around $1.2 billion less in surcharges per year, equivalent to around $60 per card-using adult per year. Cardholders would no longer need to switch to alternate payment methods to avoid surcharges.

Small merchants would be better off by around $185 million under the proposed measures than under the current framework, with around 90 per cent of small merchants benefiting from the measures in net terms. That is because most small merchants currently pay interchange fees above the proposed interchange caps, and 90 per cent of small merchants do not currently surcharge and instead choose to include their payment costs in the price of their goods or services. As a result, the proposed reductions in interchange fees would outweigh any loss in surcharging revenue for most small merchants. The 10 per cent of small merchants that currently surcharge would need to either absorb their payment costs in their margins or incorporate these costs in their advertised prices. The proposed transparency measures for payment costs, with specific breakdowns for smaller merchants and additional information on merchants’ cost of acceptance, should help small merchants to search and switch to more cost-effective payments plans.

Larger merchants already face lower interchange fees on domestic transactions via strategic rates, some of which appear to be below issuers’ costs. This has arguably resulted in smaller merchants cross-subsidising larger merchants. Large merchants stand to benefit from the proposed caps on interchange fees on foreign-issued card transactions. While some larger merchants may raise their advertised prices to incorporate payment-related costs if the ability to surcharge were to be removed, only around 12 per cent of large merchants currently choose to surcharge.

It is estimated that acquirers and other PSPs would incur around $25 million in total costs across the industry to remove surcharges and some additional costs to publish their merchants’ average costs of acceptance. The PSB expects acquirers to fully pass on the proposed reductions in interchange fees to merchants.

Domestic card issuers are expected to experience an initial reduction in interchange revenue of around $900 million. According to the RBA’s estimates, the proposed interchange caps would remain above issuers’ costs. The ultimate impact on issuers’ revenue would, however, depend on how interchange fees are adjusted under the new cap, how issuers respond to the reduction in interchange revenue, and potential changes in the volume of card payments as a result of the removal of surcharging.

Card networks would likely benefit in aggregate from higher card usage, including more credit card use. Card networks would also incur minimal costs to publish wholesale fee data. This greater transparency would be expected to subject them to additional competitive pressure.

Endnotes

Mastercard, Visa, Visa Debit, eftpos, Debit Mastercard, eftpos prepaid, Mastercard prepaid and Visa prepaid. 1