Australians Hit With $1 Billion of Debit, Credit Card Fees Each Year, But Is It Justified?

Australians are paying almost a billion dollars a year in bank transaction fees, as the RBA considers submissions from stakeholders.

An EFTPOS machine being used with a smart watch. AAP Image/Supplied by Tyro

News Analysis

Millions of Australians use their bank cards for multiple transactions every day, often unaware of the hidden transaction fees that fly under the radar.

It may not seem like much—just 20 cents here and there—but those small charges add up, with Australians now estimated to be spending hundreds of dollars each year on merchant fees.

Official estimates put the total bill to shoppers at around a billion dollars annually.

The Reserve Bank of Australia (RBA) is currently considering submissions for its Review of Merchant Card Payment Costs and Surcharging, which aims to investigate the small fees on electronic transactions.

The federal government is planning to outlaw debit card surcharges pending the outcome of the RBA review, a move that has the backing of Commonwealth Bank Australia.

Stakeholders, from individual businesspeople to major entities, have offered suggestions and cautions as the RBA contemplates the future of electronic transaction fees.

Australians Paying Up

Many may not realise they are paying fees to use their debit cards—not just credit—but it wasn’t always this way.

University of Sydney Senior Research Associate Rob Nicholls said there was a slow creep towards a system that effectively charges people to use their own money.

“The banks have increased the charges to merchants for using debit cards over time,” he told The Epoch Times.

“In the beginning, there were no charges for merchants who took either debit cards or EFTPOS.

“The banks impose charges, and the merchants simply pass them on.”

Some fees are seemingly more warranted than others.

“There are some costs to banks for collecting charge information. For example, the cost of integrating credit/debit/EFTPOS-card terminals into their systems,” Nicholls said.

“However, banks have chosen to charge fees to each other for settling charges. These interchange fees are not cost-based.”

In simple terms, when a shopper swipes their card, the seller’s bank connects with the customer’s bank to process the payment. The seller’s bank then charges the customer’s bank a fee for its efforts, which usually falls on the customer.

An image of a Brisbane City Council parking payment machine—with a notice about card surcharges—under King George Square in Brisbane CBD, Australia on Dec. 7, 2024. Daniel Y. Teng/The Epoch Times

It Does Not Cost the Bank Much

Nicholls said the fact that RBA can threaten to remove these debit card charges shows that these fees don’t actually cost banks much to provide the service. Therefore, removing the charge would not have a significant impact on banks.

“All of the banks want people to move from cash to electronic transactions,” he said.

“The imposition of debit card fees simply encourages continuity of cash. That does have a significant underlying cost to the banks.

“It seems that the banks simply can’t resist taking money out of the pockets of the people that create their billions of dollars of profit.”

Key Points From Submissions

Smaller businesses are hit harder

In his submission to the RBA, industrial relations expert Adrian Boothman says the disparity between big and small businesses regarding merchant card payment costs is a fundamental issue.

Boothman says that small businesses lack the bargaining power of bigger entities and are often left paying three times the fees of their larger counterparts.

That sum, he says, amounts to $1.7 billion annually.

In his remarks, Boothman also explores systems used by countries that have successfully introduced fee-free or low-fee banking transactions.

“From personal experience, excessive surcharges can deter business operations and impact customer satisfaction,” he wrote in the submission.

“Recently, I encountered a situation where a merchant was charged a substantial surcharge for a standard transaction, sharply increasing the final cost.

“Such instances highlight the need for transparent, regulated surcharging practices that protect both merchants and consumers from unwarranted fees.”

Calls for Transparency

The Australasian Convenience and Petroleum Marketers Association has asked the RBA not to introduce bans on retailers charging surcharges, arguing that smaller businesses would be unfairly disadvantaged by having to pay higher fees.

Instead, the group suggests that all banks and payment services should have to provide a detailed breakdown of their direct merchant costs, which would then be published so merchants can compare the fee prices.

The association has also called for a simplistic summary of total debit and credit merchant fee charges on all new fee contracts and renewals and a dynamic least-cost routing system.

Dynamic least-cost routing automatically analyses and selects the most cost-effective network for each individual transaction.

Around 85 percent of debit cards in Australia are dual-network cards, meaning they could either shift funds through a local system or an international group, like Visa or Mastercard.

Contactless payment options usually choose the latter, but rerouting payments through local EFTPOS options could be cheaper.

In its submission, Qantas Airways also supported clarity around fees and the dynamic least-cost routing system.

RBA Contemplating Submissions

A spokesperson for the RBA told The Epoch Times that review submissions were in the analysis stage.

“We are currently at stage two of the program where we published the submissions for the review,” the spokesperson said.

“The feedback is currently being analysed with no outcomes at present.”