What you need to know about card surcharges

Convenience, security, widespread acceptance. Whatever the reason, it's clear that cards are by far and away the most popular way for Australians to pay these days.

More than three in every four payments made by consumers are now done with a debit or credit card, research published by the Reserve Bank last year shows - a share that has accelerated in recent years.

Despite their popularity, Australians clearly aren't fond of some aspects of paying with card though. One of these is card surcharges.

In fact, a recent survey conducted by consumer advocacy group CHOICE revealed that only 15% of people think it's fair for businesses to apply surcharges to card payments.

"Paying with your own money, whether it be by debit card or cash, should not come at a cost," says Tom Abourizk, head of policy at CHOICE.

"We need to change the surcharging rules to stop major companies in the payments sector gouging both consumers and small businesses through card surcharges."

The research also found that consumers aren't always being warned about the cost of paying by card, as 66% of respondents said that they had experienced businesses applying surcharges without being told.

So what do consumers need to know about how surcharges work and their rights when paying by card? Here are answers to some of the most commonly asked questions about surcharges.

1. What is a card surcharge?

A card surcharge is simply an additional fee paid by consumers who choose to pay by card. This is on top of the price of whatever item or service is being purchased.

These fees are passed on by merchants or businesses, who themselves are charged by payment service providers for processing transactions.

Surcharges typically come as a percentage of the transaction (e.g. 1%), though businesses can charge a flat fee if it's representative of the cost incurred.

2. How much does it cost for businesses to accept card payments?

In an analysis into the cost of card payments published in 2022, the Reserve Bank noted that there are multiple elements that make up the fees that merchants incur for accepting card payments.

These merchant fees also differ depending on the type of card being used (e.g. a debit or credit card), the type of transaction (e.g. online or in-person) and the specific card network which processes the transaction (e.g. Mastercard or Visa).

The RBA has estimated that, on average, it costs businesses less than 0.5% to accept Eftpos payments, between 0.5% and 1% to accept debit card payments made with Mastercard or Visa and between 1% and 1.5% to accept credit card payments with Mastercard or Visa.

3. When can businesses charge a card payment fee?

Australians won't be hit with surcharges every time they pay using card. That's because some businesses choose to absorb card payment costs which, instead, may then be reflected in the price of their goods or services.

Others pass these costs on directly by way of a surcharge. This is currently perfectly legal for businesses to do on payments made using a debit card or credit card - whether they're in-person or made online.

Depending on the specific type of card used though, there are restrictions on the amount which customers can be surcharged.

4. How much can cardholders be surcharged in Australia?

Back in 2017, the federal government introduced a ban on excessive fees for certain card payments. In essence, this means that businesses who choose to surcharge can only recoup the costs they actually incur for accepting those payments.

The ban on excessive surcharges applies to Eftpos (debit and prepaid cards), Mastercard (credit, debit and prepaid cards), Visa (credit, debit and prepaid cards), and American Express (only for credit cards  issued by Australian banks).

Here's an example of a surcharge fee and how the excessive surcharge ban works. If a business incurs a 0.75% cost on average to accept Visa debit card payments, then it can only pass on a 0.75% surcharge to customers on each transaction using that type of card.

It's worth noting that the excessive surcharge ban doesn't cover payments made with the likes of BPAY, PayPal, Diners Club or American Express cards which are issued directly by American Express.

5. Can government entities pass on surcharges?

The New South Wales Government recently admitted that residents had been unlawfully hit with surcharges on 92 million payments made to Service NSW and Revenue NSW over a number of years.

The disclosure then prompted a broader question: Is it legal for any government entity to add a surcharge to card payments? It's a question the federal government recently looked into.

After receiving advice that the collection of payment surcharges by Commonwealth agencies was likely unlawful in some situations, the government announced that it would halt the practice of adding surcharges to debit card payments made to the ATO and Services Australia from the start of 2025.

6. Do customers have to be given a fee-free payment option?

Businesses aren't obliged to offer a payment option that doesn't have a surcharge attached to it. What they must do, according to the Australian Competition and Consumer Commission, if they don't offer any option without a surcharge is to include the minimum surcharge amount in the displayed price.

The consumer watchdog uses an example of a café which surcharges for all card payments and doesn't accept cash. In this case, if the price of a coffee is $5 and the minimum surcharge is 10 cents, then the café would need to display the coffee price as $5.10.

In addition, the ACCC says that businesses will also need to ensure that they clearly display any other higher surcharges that may also be applicable.

7. Do businesses need to inform customers about surcharges?

While it's illegal not to display surcharges when there is no fee-free payment option available, what if a business also offers cash payments or other fee-free options?

In this instance, the ACCC notes that businesses should still prominently display any surcharges that their customers might incur, so that they are aware of the additional costs they might have to cough up.

8. How can card users avoid paying surcharges?

Nobody will want to pay a card surcharge if they can help it. In some situations customers may be able to avoid a surcharge by paying cash instead, and in others they may simply have to skip shopping at a certain business if they don't want to be surcharged.

For Australians who are wedded to paying by card though, is it possible to avoid a surcharge by inserting or swiping their card rather than tapping it?

For debit card purchases, it might be possible to reduce the size of the surcharge by using the eftpos network rather than the Mastercard or Visa networks (which are typically more expensive). To do that, consumers will need to swipe or insert their cards and select 'savings' rather than tapping.

9. Are card surcharges banned in other countries?

There are a handful of countries and jurisdictions throughout the world that have outlawed card surcharges to different degrees.

For instance, surcharges on both debit cards and credit cards have been banned in the United Kingdom since 2018, while across the European Union customers can't be charged an extra fee for paying with a credit or debit card - whether that's in a store or online.

10. Could card surcharges be made illegal in Australia? 

In light of the estimated hundreds of millions of dollars that Australians fork out in card surcharges each year, the federal government made an announcement in October outlining its plans to ban surcharges on debit card payments from January 1, 2026.

The Labor government argues that Australians shouldn't be slugged for paying with their own money at the checkout, though the implementation of any changes will be subject to a review currently being undertaken by the RBA into card payment costs and surcharging.

Whether this will reduce the overall price that consumers pay at the checkout is contested though, as some have argued that businesses may simply increase their prices more to offset these costs.

For more information on the rights and obligations of consumers and businesses take a look at the ACCC's guide on card surcharges, or to prepare yourself for any dining out in the festive season check out our piece on the restaurant surcharges you need to watch out for.

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