Card surcharges are gone, but who pays now?

Local businesses say the removal of card surcharges is flowing into menu prices, with some already increasing their prices and more planning to follow.

The changes began on Thursday, October 1, but while customers will no longer see a separate surcharge on EFTPOS, Visa and Mastercard payments, businesses still have to pay fees to accept those transactions.

Paul the Pieman production manager Mitchell Woods said the iconic Inverloch bakery removed its surcharge last week and slowly adjusted its prices ahead of the change.

Previously, customers paid different surcharges depending on their card, which Mr Woods estimated at around one to two per cent.

“We’re going to have to put up our prices for that reason, which is a bit disappointing when not everyone uses card,” he said.

“You know, people still use cash, so it’s sort of a disadvantage for people in that regard.”

Card payments now account for about 80 to 85 per cent of the bakery’s transactions, Mr Woods said.

He said the business already absorbed some additional costs by not charging weekend or public holiday surcharges, but couldn’t absorb the loss of card surcharge revenue as well.

“We are unable to take that one on, so we’ve had to pass it on a bit in our prices.”

Curry Club owner Bunty Singh, who operates three restaurants in Wonthaggi, Cowes and San Remo, also said menu prices would increase.

Mr Singh said small businesses were still being charged by payment providers, even though they could no longer recover those costs through a separate card surcharge.

“It’s gonna be more expensive for us as well at the end of the day,” Mr Singh said.

He pointed to additional costs, like the expense of replacing menus and updating websites when the prices changed.

The federal government said the reforms would ease cost-of-living pressure by removing separate card surcharges and lowering some card payment fees charged to businesses.

“People shouldn’t be punished for using a credit or debit card,” Treasurer Jim Chalmers said in a statement back in March.

Businesses still pay fees to accept card payments, but the Reserve Bank has lowered caps on interchange fees, which make up part of those costs.

The change is intended to make accepting cards cheaper for businesses.

However, banks and payment providers still need to pass those savings on for businesses to benefit.

The government estimates the reductions will save businesses about $910 million a year.

If businesses pay less in fees, then in theory, they may not need to increase their menu prices as much to cover the cost of accepting cards.

But when businesses increase menu prices for everyone, cash customers also pay more, despite never having paid a card surcharge.

Accountant Natalie Lennon, founder of accounting firm Two Sides, raised that concern back in July in an opinion piece published by SmartCompany.

“Cash customers, who have never paid a surcharge in their lives, will now subsidise card users through higher prices on everything,” she wrote.

But the Reserve Bank fully expected some businesses to raise prices when separate card surcharges ended.

Speaking on September 29, RBA Governor Michele Bullock said, “the cost of taking cards and cash will be built into the price”.

She said the bank would closely monitor whether lower interchange fees flowed through to businesses.

The RBA expects customers at businesses that previously surcharged generally to pay a similar total amount, with payment costs incorporated into advertised prices.

However, the jury is still out on whether this will have a positive effect on relieving cost-of-living pressures.