The hidden catch in Australia's card surcharge ban

October will see a big change in Australia's financial system - the banning of surcharge fees that apply when we pay for purchases with a debit or credit card. 

These pesky fees are a classic example of how something small can have a super-sized impact at scale.  

Credit and debit card surcharges that apply across the Visa, Mastercard and EFTPOS networks may only work out to a few cents per purchase. But add that up over millions of cardholders - and billions of transactions - and the Reserve Bank of Australia (RBA) says Aussie consumers are collectively paying $1.6 billion in surcharge fees each year. Canstar estimates that works out to about $80 annually for each card-using Aussie. 

The ban on surcharges should, in theory, see shoppers save. And that's a good thing. However, removing a solid chunk of revenue from the banking system is likely to have flow-on effects.  

To understand what may happen, let's take a look at why we even have surcharges and the possible side effects of the surcharge ban. 

Card surcharges - a leftover from the early 2000s 

In our rapidly evolving financial system, a great idea can quickly become a dud. That's certainly the case with card surcharging. 

First introduced in the early 2000s - a time when credit card use was rapidly rising - surcharging was seen as a way of encouraging consumers to choose cheaper payment methods like cash.  

It wasn't bad logic. After all, there's nothing like a little hip pocket pain to get us to rethink our financial habits.  

Even today, shoppers still take steps to avoid surcharges. A Canstar survey found: 

• 33% of consumers try to pay with cash when faced with a surcharge. 

• 22% manually insert their card into the machine in store to avoid paying a surcharge. 

• 11% avoid shops that charge a surcharge on card payments.  

The problem is you might not even be aware you're paying a surcharge. Only 13% of shoppers are always told about surcharges, according to the RBA.  

As Federal Treasurer Jim Chalmers says, we should be able to use our cards without being penalised for the convenience. 

The catch is that banning card surcharges will leave a $1.6 billion hole in the financial system. And something has to fill that gap.  

Could we see businesses raise their prices? 

Consumers aren't the only ones who pay a fee for card payments.  

Banks can charge payment providers for each transaction they help facilitate. This cost is passed on to businesses as an 'interchange' fee. 

Surcharging has allowed small businesses to recover interchange fees and, understandably, plenty of small business groups are not happy about the ban. 

As part of the card surcharge overhaul, the RBA will drop the maximum banks can charge as interchange fees.  

The upper limit on credit card payments, for example, will dial down from 0.8% to 0.3% per transaction. The maximum fee on debit cards will fall from 0.2% to 0.16%. International card interchange limits will also change from 1 April 2027. 

Change in interchange fees from 1 October 2026 

Source: RBA

It's estimated this will see businesses save about $910 million annually.  

Even so, interchange fees are only being reduced, not wiped altogether.  

There are also other fees that businesses are charged, such as acquirer margins and scheme fees imposed by the card networks (Visa, Mastercard and EFTPOS) for using network infrastructure and maintaining security. These are not being reduced, and some experts suggest they could rise as interchange fees fall.  

Left without a surcharge to cover the fees, some businesses may lift their prices, passing the cost back to consumers. 

What else you need to know 

Keep in mind that not every payment method will be covered by the surcharge ban. The ACCC says exclusions include cash, BPAY, PayPal, Diners Club, American Express and taxi fares. 

It's also worth noting that the ban will also apply to ATO payments. Australians who reach for a credit card to pay their tax bill or businesses that use a credit card to pay their BAS will find the Tax Office will not be able to apply a surcharge to their payment once the reforms kick in. 

Card rewards programs could bear the brunt 

Interchange fees are a key source of funding for credit card reward programs. A dent in this revenue stream has the potential to impact rewards - and/or the cost of reward-based cards.  

As the RBA points out, most card issuers already charge higher fees on credit cards that offer more rewards and benefits. As the ban on surcharging and the fall in interchange fees takes effect, cardholders could be slugged with higher rates, higher fees - or both - on reward-based cards, or face diluted reward programs. 

Alternatively, cardholders may need to work harder (that is, spend more) to be eligible for rewards.   

That makes now a good time to check whether your rewards card offers genuine value. Keep an eye out too for messages from your card issuer about a rise in the card's rate or fees. You could be better off switching to a cheaper, basic card. 

This may sound a bit rough for anyone with a rewards card. But the ban on surcharges means debit cardholders will no longer be subsidising the cost of reward programs. 

It's just one way in which the scrapping of surcharges will help our financial system become more transparent - and fairer for all consumers.