RBA proposes sweeping reforms to simplify payments and cut acceptance costs – with wider implications for global card regulation
The Reserve Bank of Australia (RBA) is proposing to eliminate surcharges on Visa, Mastercard and eftpos card payments in a regulatory reform that would simplify payment costs for consumers and push acquirers to lower merchant fees.
Outlining the proposals in a new consultation paper, the RBA said its existing surcharging framework – introduced over two decades ago – was no longer serving its intended purpose of improving competition and efficiency. It now plans to revoke rules that prevent card networks from imposing ‘no-surcharge’ clauses, effectively paving the way for card schemes to ban surcharging altogether.
“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,” its consultation paper said.
Surcharging framework no longer fit for purpose
Australia’s surcharging framework has long allowed merchants to pass on card payment costs to consumers, provided they do not exceed their actual cost of acceptance. However, the RBA says a combination of structural shifts and enforcement challenges have made the system less effective.
“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 paper says.
Only around 10% of merchants currently apply surcharges, according to the RBA, with the majority instead bundling the cost into their prices. This has led to increasing concerns about the effectiveness of the price signals surcharging was meant to provide, especially as digital and card payments have become ubiquitous.
The regulator also cited poor disclosure practices, drip pricing at the checkout, and evidence that some PSPs are bundling non-payment-related costs into surcharges as reasons to simplify the framework.
“Submissions noted that the current surcharging framework can be challenging to understand due to its complexity,” the paper said.
Proposed measures
Under the RBA’s preferred policy package, it would:
- Remove surcharging across all designated debit, prepaid and credit card systems (including Mastercard, Visa and eftpos)
- Lower caps on domestic interchange fees
- Introduce new caps on foreign-issued card transactions
- Require card networks to publish wholesale fee schedules and justify future scheme fee increases
- Require acquirers to provide clearer reporting to merchants on cost of acceptance and pricing structures
The RBA estimates that eliminating surcharges alone would save consumers around $728m (A$1.2bn) per year. The proposed interchange reductions could deliver a further A$1.2 billion in savings for merchants, assuming PSPs pass them through.
Merchant and network implications
The RBA’s modelling suggests that around 90% of small businesses would benefit financially under the proposed measures. Most do not surcharge and would therefore gain from lower interchange fees, particularly on debit card transactions.
Large merchants, many of whom currently enjoy preferential rates through strategic agreements, may see less impact from domestic interchange changes. However, they are likely to benefit from new caps on fees charged for international card payments, which remain high and opaque.
Payment service providers are expected to face an estimated A$25 million in aggregate costs to implement the reforms, mainly related to updating pricing structures and compliance systems.
Card networks would be required to disclose interchange and scheme fee structures, with the aim of improving competitive pressure across the ecosystem.
Broader regulatory context
The RBA’s proposals arrive at a time of heightened global scrutiny over card fee structures. In the UK, the Payment Systems Regulator (PSR) is currently investigating scheme and processing fees, with many merchants raising concerns about rising costs since the post-Brexit removal of interchange caps on European card transactions.
While the UK banned consumer-facing surcharges in 2018 under the EU’s second Payment Services Directive (PSD2), Australia has historically taken a different path by allowing surcharging, albeit with controls.
The proposed shift now brings Australia more in line with jurisdictions that prohibit surcharges entirely, while simultaneously tightening the regulation of the underlying fees.
Stakeholders are invited to submit written responses to the RBA’s consultation by August 26.The Payments System Board expects to publish final conclusions and an implementation timeline by the end of the year.
