The fees charged by retailers for payments made using the so-called ‘tap-and-go’ method should be banned, according to the bosses of the country’s four largest banks.
Businesses are currently allowed to add a surcharge to their prices. This surcharge covers the fees banks charge for processing electronic payments. Reserve Bank data shows this costs Australians a collective $960 million a year.
Andrew Irvine, director of the NAB, recently told a parliamentary inquiry into the banks that the practice was “outdated” and that suppliers should bear the costs as “part of their operating costs”.
The RBA is currently reviewing surcharges and is expected to publish a consultation paper in late 2024. However, Irvine said it was “excessive” for businesses such as pubs to be charging surcharges of up to 10 per cent on items.
Under RBA rules, which are enforced by the Australian Competition and Consumer Commission (ACCC), surcharges must only reflect the costs a business incurs to process a specific type of payment.
As a guide, the RBA estimates this is around 0.5 per cent for Eftpos, 0.5 to 1 per cent for Visa and Mastercard debit cards and 1 to 1.5 per cent for Visa and Mastercard credit cards.
NAB, ANZ, Westpac and CBA reported a combined profit of $32.5 billion after tax in 2023, up 12.4 percent from FY22, thanks to higher interest rates.
Small and medium-sized businesses, on the other hand, are facing the highest number of insolvencies in the past decade, according to financial regulator ASIC, as operating costs and loan repayments rise and customers cut back on spending due to rising cost-of-living pressures.
NAB chief executive Andrew Irvine said businesses should include the cost of processing the tap-and-go payments as part of their costs rather than passing them on to their customers.
The ACCC oversees card surcharges, but companies can also charge other surcharges, such as for public holidays or weekends.
Mr Irvine said there needs to be more transparency if the allowances are to remain.
“It is possible that allowances were justified 20 years ago, but I think we have to ask whether they still serve their purpose,” he told the committee on Friday.
“It just creates confusion. It means I don’t know the price of a good I’m buying and I don’t like it.”
Westpac chief executive Peter King told the inquiry he also had concerns about surcharges.
“We have a market that is too complex for the consumer to make a decision. Another problem is that some traders charge higher than the cost price because the rules are not enforced,” he said.
ANZ’s Shayne Elliot said clarity on surcharges would be beneficial for Australians.
“People are finding it increasingly difficult to pay for their housing and daily expenses, and businesses are struggling with higher costs,” he said.
This came after Commonwealth Bank CEO Matt Comyn told the committee that the difference between cash payments and surcharged card payments was not a fair comparison.
Businesses also incur costs for physical money, such as securing and transporting it. However, these costs are considered business expenses.
The big four banks are all members of the Business Council of Australia (pictured: outgoing President Jennifer Westacott (second from left) with Prime Minister Anthony Albanese (far left) and Commonwealth Bank CEO Matt Comyn (second from right)
Earlier, the NAB boss said Australia was experiencing a “two-speed economy”.
According to Irvine, the cost of living remains an issue for people as economic growth is weaker than in previous years. However, he expects interest rates to fall.
“There are two Australias and a two-speed economy at the moment. Customers in certain sectors and certain regions are doing well and have ambitions to grow,” he said.
‘People have to make difficult decisions about what to spend their money on.
“They’ll make it, but it’s tough.”
The bank chief noted that people in the mining and resources sector, as well as those living in jurisdictions such as Western Australia, Queensland and the Northern Territory, were doing well given the economic conditions.
But many businesses in the southeastern states and in retail and construction faced greater pressure.
Mr Irvine urged the federal government to keep inflation under control as many mortgage holders struggle with high interest rates.
“We all need to remember that one in three Australians has a mortgage,” he said.
“On the other hand, inflation affects everyone. Tenants are hit particularly hard by higher rents and higher living costs.”
Australians with mortgages continue to face financial hardship, with the official cash rate standing at 4.35 per cent since November.
According to Mr Irvine, growth in Australia was around 1.5 per cent, lower than in the past three decades.
“Most consumers are coping. They’re juggling, they’re balancing, but they’re not having fun,” Irvine said.
Hidden markups on retail prices cost Australians about $960 million a year, according to the RBA
“Younger families who may have only bought a home in the last five years are likely to be hit hardest.”
The NAB chief said he was still optimistic about interest rate cuts from early 2025.
“We’re reaching a point where interest rates are going to come down. That’s going to put more money into the economy, more demand into the economy, which means businesses are going to be healthier,” he said.
‘If interest rates actually come down next year, which we hope they will, I think that will have positive consequences for everyone.’
Card surcharges are already banned in Europe, Canada, the United States and the United Kingdom.