Many businesses that relied on a surcharge of around 1% to 2% now have to absorb it into operating costs or recover it through pricing. For some SMEs, that adjustment has squeezed cash flow and forced tough decisions about whether, and by how much, to raise prices.
In this blog, we look at why surcharges existed in the first place, why the Reserve Bank of Australia (RBA) has removed them, and what your business can do to manage the transition.
Why did businesses charge a surcharge?
For most businesses, the surcharge existed to recover the cost of accepting card payments.
Those costs add up. EFTPOS terminals from banks and payment providers usually carry a rental fee per device.
On top of that, merchant service fees are charged as a percentage of each sale, generally ranging from around 0.79% to 1.7% depending on the provider and card type. Then there are the less visible costs, including chargeback dispute fees (often around $30 per incident), PCI compliance fees, and integration fees for accounting or inventory software.
The surcharge allowed businesses to pass some of those costs on to the customers paying by card.
Why the change?
Surcharging was permitted in Australia from the early 2000s to nudge consumers towards cheaper ways to pay. The payments landscape has shifted a lot since then. According to RBA data, cash accounted for around 70% of transactions in 2007, compared with roughly 15% today. With cards now the default, most consumers were paying surcharges with no practical way to avoid them.
The RBA also found that most businesses applied a flat surcharge regardless of card type, and that only 13% of consumers were made aware of a surcharge before paying. It concluded that removing surcharges better reflects a consumer preference for all-inclusive sticker prices over unexpected fees at checkout.
It’s worth noting that American Express isn’t covered by the ban and is being reviewed separately.
What it means for SMEs
To soften the impact, the RBA has lowered the caps on interchange fees, the wholesale fees charged each time a card is used.
From 1 October, the cap on consumer credit cards drops to 0.3%, and the cap on debit and prepaid cards drops to 0.16% (or 8 cents per transaction). The RBA estimates these changes will reduce merchant payment costs by around $910 million a year, with smaller businesses expected to benefit most.
That relief helps, but it won’t fully replace the surcharge for every business. SMEs typically pay higher merchant service fees than large retailers, interchange is only one part of those fees, and the savings depend on payment providers passing the lower caps through. Any cost an SME absorbs comes straight off the bottom line.
How are SMEs managing?
Generally speaking, there are three main approaches an SME can take.
- Absorb the cost. Treating card fees as an overhead keeps prices steady for customers, though it means accepting a thinner margin. This may suit businesses with healthy margins or lower card volumes.
- Adjust pricing. Building card costs into your prices spreads them across all customers. As underlying card costs are expected to fall, some businesses may find they need a smaller price rise than their old surcharge.
- Encourage lower-cost payment methods. Promoting cash or direct bank transfer can reduce the share of sales attracting card fees, particularly for larger invoices.
Whichever path you take, now is a good time to review what you’re paying for card acceptance. The RBA is also introducing measures requiring payment providers to give businesses clearer, standardised fee information, which should make it easier to compare providers and negotiate a better deal.
Keeping things ticking
Pricing changes take time to settle, and some businesses will feel a squeeze on cash flow while they find the right approach. A temporary gap can make it harder to pay suppliers, cover wages or take on new work.
This is where cash flow finance can help. It bridges short-term gaps so your business can keep operating as normal while you adjust. Depending on your situation, options might include a working capital loan, a business line of credit or overdraft, or invoice finance that frees up cash tied up in unpaid invoices.
If you’d like to understand which option suits your business, get in touch. We can compare solutions across a range of lenders and help you find a structure that fits your cash flow.
This article is general information only and doesn’t take into account your personal or business circumstances.
