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A Labor MP has urged the Treasury and the Reserve Bank of Australia (RBA) to create new powers that would allow regulators to penalise acquirers that charge "excessive" merchant fees.
Jerome Laxale, MP for Bennelong in northern Sydney, said it makes little sense that the Australian Competition and Consumer Commission (ACCC) can penalise merchants for “excessive” surcharging, but cannot penalise acquirers for “excessive” fees.
He urged the Treasury and RBA to close the "regulatory loophole” that allows acquirers to take advantage of merchants by bundling different payment methods into a single “blended” pricing plan.
“Australians deserve better than a carte-blanche for the cowboy card industry,” said Laxale.
The Labor MP added that he believes that blended pricing is responsible for driving surcharging among small and medium-sized merchants — a trend that is punishing Australian consumers, who are already suffering from high inflation.
However, prohibiting surcharging alone is no solution, said Laxale, if merchants continue to be locked into blended pricing plans that conceal the true cost of each payment.
“If there were to be a prohibition of charging any surcharge by a merchant, but that prohibition does not apply to other participants in the chain, small merchants particularly would be in a very precarious position, because they would continue to be charged a blended rate fee,” he said.
Pressure builds for action on blended pricing
Laxale’s comments build on the MP’s questioning of Michele Bullock, RBA governor, during a parliamentary committee hearing last week.
Bullock appeared before the Standing Committee on Economics, of which Laxale is a member, primarily to defend the RBA’s latest interest rate cut, but also to discuss the bank’s ongoing review of merchant costs and surcharging.
Laxale pointed out that smaller merchants can be charged anywhere from 1.1 to 2.9 percent for every transaction, regardless of the payment method used.
He also pointed out that, based on the RBA’s own research, the average domestic debit card transaction now costs less than 0.5 percent.
Moreover, many acquirers justify their fixed-rate plans by bundling other non-processing-related costs into the price charged per transaction.
These can include hardware costs, software costs and even deals that involve additional frequent flyer points.
Laxale asked Bullock whether the RBA has ever received complaints about, or investigated the impact of, these blended pricing plans on total merchant fees.
Bullock said that blended pricing and increased surcharging have emerged as a “completely unintended” consequence of the removal of Australia’s no-surcharge rules in 2003.
She added that, like the ACCC, the RBA currently has no powers that could be used to penalise acquirers for charging “excessive” or opaque fees to merchants.
On the contrary, she argued that blended pricing is popular among small and medium-sized merchants because it simplifies a range of costs that would otherwise be complex and difficult to understand.
“I think that small merchants prefer simplicity,” she said. “The big merchants all enter into quite complex ‘Interchange++’ arrangements.
“Small merchants don't want to go through reams of information about how this charge is for this card and that charge is for that card. They just value simplicity.”
As a counter-point, a survey from Australia’s Independent Payments Forum (IPF) has indicated that, if surcharging were banned, 87 percent of merchants would value “price” over “simplicity”.
Why do merchants surcharge?
Asked whether blended pricing is driving surcharging, Bullock said she “does not know”.
Although the cost of acceptance for card payments has fallen dramatically since 2003, particularly for debit card payments, Bullock did note that, for smaller merchants, these savings do not appear to be being passed on.
She added that, under Australia's current retail payments framework, competition between acquirers does not appear to be producing lower-cost alternatives, as one would expect.
Instead, the number of merchants who surcharge for card payments has “doubled” since 2019, said Bullock.
Although the RBA governor noted that these merchants are still a minority, she acknowledged that some of their surcharging practices have created a problem that is “in-your-face” for the Australian consumer.
For example, as many of the submissions to the RBA’s review pointed out, it is not uncommon to see double-digit surcharges added to bills during public holidays.
However, acquirers must take some responsibility for Australia’s widespread surcharging problem.
For example, some acquirers now offer “automatic” surcharging functionality, which builds a surcharge into every transaction, regardless of the payment method used.
Last week, as covered by Vixio, the ACCC announced that penalising merchants who engage in “excessive” surcharging will be one of its enforcement priorities in 2025-26.
The ACCC has also received A$2.1m in extra funding from the Labor government specifically to fight excessive surcharging.
Next steps
The RBA received more than 90 submissions to its review of merchant card costs and surcharging, including one from Laxale himself.
Bullock said the RBA will be discussing the options and their trade-offs with the Payments System Board next month, and will aim to publish a consultation paper in mid-2025 that will outline the board’s preferred policy options and seek feedback.
In the meantime, Bullock acknowledged during the hearing that it will be difficult to please all stakeholders, but said that the RBA will aim to respond with the “public interest firmly in mind”.
