Adding padding to credit card payments? You might be violating ACCC rules

As of today, all small businesses in Australia have been banned from charging their customers ‘excessive surcharges’ for using EFTPOS, Mastercard, Visa and American Express cards to make payments.

It is now illegal to charge more than the amount it costs you to process these payments – usually 1.5% for Visa or Mastercards, 0.5% for debit cards, and 2-3% for American Express – but no more.

Why the ban?

If you’ve been struggling to cover payment processing fees in your business, you might be wondering why the ACCC is enforcing this ban.

Unfortunately, some businesses have been charging higher fees than is necessary when their customers pay with their cards. You might have seen it in your own shopping – just imagine booking a flight through a budget airline, only to discover there’s a $10 fee when you pay with a credit card. Or how about when your local café adds 50 cents added to your morning cup of coffee when you pay by card?

All together, these surcharges added up to an extra $1.6 billion a year, or about $130 per person.

Beyond the financial cost, research by RDG Insights found that:

  • 38% of consumers feel that a business doesn’t appreciate their purchases when they charge a surcharge.
  • 28% of consumers are unlikely to return to the business.
  • 93% of consumers would like surcharges removed.

In short, surcharges are expensive and, as consumers, most of us don’t like them.

So what can you charge?

When you’re in small business, margins can be tight, and those margins get even tighter when you have to cover bank and credit card processing fees. So what can you do?

The good news is that the ACCC ruling won’t prevent you from passing those charges on, but your surcharges do need to accurately reflect your expenses (so no extra padding!).

It’s also important to keep in mind that, if you wanted to set up a single surcharge to accommodate different payment methods, the surcharge must be at the level of the lowest-cost method. For example, if the cost to process a debit card payment is 1%, a Mastercard or Visa is 1.5% and an American express is 2.5%, the single surcharge would need to be 1% across all payment methods.

If the ACCC has reasonable grounds to believe that a business has breached the ban, it can issue an infringement notice or take court action against the business.

Want more information?

Check out the ACCC’s Q&A on payment surcharges.

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