Ban on excessive payment surcharges
About the ban on excessive surcharges
Businesses incur costs for processing certain card payment types.
Some businesses include these costs in the prices they charge for their products. Others pass the costs on as a
surcharge for paying with the card.
Certain rules apply when a business applies a
surcharge to particular cards:
- the surcharge must not be more than what it costs the business to use that payment type
- the surcharge can only include costs that are for accepting that particular payment. For example, if a business pays an amount for gateway fees for processing credit card transactions only, the business cannot include this cost in its debit card transactions.
How much it costs a business to process a payment depends on the size of the business, the technology used, and the payment method. Small businesses usually have higher processing costs than large businesses.
Whatever the surcharge amount, the business must be able to prove the costs they used to calculate it.
Fees that aren’t called surcharges, but really are
A business can’t escape the ban by calling a payment surcharge something else.
For example, if a business charges a service fee or handling fee that only applies to some payment methods, this is probably a payment surcharge by another name, so the ban on excessive surcharges applies.
Payments the ban applies to
This ban on excessive payment surcharges applies to:
- Eftpos: debit and prepaid
- MasterCard: credit, debit and prepaid
- Visa: credit, debit and prepaid.
Payments the ban doesn't apply to
The ban doesn't apply to:
- Diners Club
- American Express cards issued directly by American Express
- taxi fares, whatever the payment type.
Concerns about a surcharge that isn't covered by the ban can be reported. Report:
- BPAY, PayPal, Diners Club and American Express payments to the relevant BPAY, PayPal, Diners Club or American Express system
- taxi fare payments to the relevant state or territory taxi industry regulator.
Costs that businesses can include
The Reserve Bank of Australia sets out the costs that businesses can include when determining their reasonable costs of accepting payment types.
Before introducing a payment surcharge, businesses should read our Payment surcharges guide and the Reserve Bank of Australia guidance material. Consumers may also wish to read these guides for further information about how excessive payment surcharges are calculated.
Business costs of accepting payments
Businesses receive monthly and annual statements from their bank or payment facilitator. These should include the business’s average percentage cost of accepting each payment type. This figure will generally include service fees, costs for card terminal rental and maintenance. It may also include other fees the bank or payment facilitator passes on to the business for processing card transactions.
Businesses should contact their bank or payment facilitator, or the Reserve Bank of Australia, if there are issues obtaining these statements.
There may be some additional costs that don’t appear on these statements which businesses may include in their surcharges.
These include costs paid to providers other than their bank or payment facilitator, such as gateway fees, terminal fees, fraud prevention costs and costs of specific types of insurance. Businesses need to calculate these costs themselves.
Average costs for different payment types
As a guide, the Reserve Bank of Australia has estimated average costs for different payment types:
- Eftpos: less than 0.5%
- Visa and Mastercard debit: between 0.5% and 1%
- Visa and Mastercard credit: between 1% and 1.5%.
To accept these payment types, most businesses incur costs within these ranges. For some they may fall outside these ranges.
Rules when calculating a surcharge
The lowest surcharge
If a business wants to set the same surcharge for all payment types, it must not be more than the lowest surcharge they would set for a single payment type.
A business’s average cost of acceptance for Visa debit is 1% and for Visa credit is 1.5%.
If the business wanted to charge the same level of surcharge for each payment system, it would need to be 1% as that is the lowest of all payment systems. The business could not average out the costs for both.
Flat fee surcharge
Businesses can use a flat fee rather than a percentage surcharge. However, businesses need to make sure that the surcharge is no more than what it costs the business to use that payment type.
Businesses also need to be careful of imposing a flat fee surcharge on relatively small cost transactions.
Surcharges only for payments below a certain amount
Businesses are allowed to set a minimum amount for card payments.
Businesses can also set a surcharge only for card payments below a certain amount. For example, a 50 cents surcharge for card payments under $10. If a business sets a surcharge in this way, the surcharge must comply with the ban and not be excessive.
If business’s costs for payments by credit card is 1% and it charges a 1% surcharge for credit card payments, a customer buying a coffee for $4 would pay a four cents surcharge.
If the business decides to charge a 50 cent surcharge for all card payments on transactions less than $10 and a customer buys a coffee for $4, that surcharge is a 12.5% surcharge. This would exceed the businesses cost of acceptance for that transaction.
When payment without a surcharge isn't an option
If there's no way for a consumer to pay without paying a surcharge, the business must include the minimum surcharge payable in the displayed price for its products. This occurs when a business doesn’t accept cash and it applies a surcharge to all card payment types.
Example of how to display a price where payment without a surcharge isn't available
A business charges $5 for a coffee, does not accept cash, and all card payment methods are surcharged.
In this scenario, a consumer cannot actually purchase the coffee for $5. For example, if the lowest possible surcharge was a 15 cent debit card surcharge, the price displayed for the coffee should be $5.15.
If the business chooses to display the $5 price, the business must also show the full price of $5.15. The $5.15 price must be clear and stand out so a consumer can easily notice it as much as any statement of the $5 price.
The business also cannot display its price as ‘$5 (payment surcharges apply)’, because it is unclear to consumers what the price of the payment surcharge will be.
If the business also chooses to display prices without including the minimum surcharge payable, then these amounts must not be displayed more prominently than the prices including the minimum surcharge.
Businesses also need to make sure that any higher surcharges for other card types are clearly displayed.
Example of how to display higher surcharges for other card types
Using the example above, if there was also a 25 cent surcharge for credit card purchases, this should also be clearly displayed.
The business could do this in a few different ways, such as clearly displaying:
- the full $5.25 price for a credit card purchase of the coffee
- the 25 cent amount of the different surcharge
- the 10 cent increment between the two surcharges.
When payment without a surcharge is an option
Where there are other ways for a consumer to pay without paying a surcharge, businesses should still display any surcharges in a prominent way so that consumers are aware of the additional costs before payment.