Australia Bans Surcharges Because Banks Have Too Much Power

Australia has a super, super cool surcharge economy.

And we’re not just talking about credit card surcharges.

In Australia, it’s common for businesses to add surcharges at the slightest inconvenience.

Open on the weekends?

Surcharge.

Holiday?

Surcharge.

It’s not as sunny as you’d like it to be?

Sure, let’s throw a surcharge out there.

We’re not even kidding.

Pasting some images for proof.

Part of us just thinks this is an awesome market response to supply and demand.

Think about it: airlines and hotels increase costs based on demand.

Uber has surge pricing.

All the big US couriers are adding surcharges as fuel prices go up.

Surcharges are uniquely free market.

And they sure as hell beat the alternative.

Think about it: if an authoritarian caps the costs of a good or service, and the price increases to the point where delivering that good or service is uneconomical, who the hell would provide it?

But this is a payments/retail tech periodical.

So when we mention surcharge, we mean the variety stemming from cards.

By October, surcharges will no longer be permissible in Australia.

And it’s important you read the content in that link, as we think it’s a great case study on surcharges generally.

First, an estimated 16% of Australian businesses surcharge cards.

That’s about the same was it is domestically, but we have a pretty high CAGR on surcharges. Today it’s estimated that over a third of US businesses add card fees, whether surcharge or dual pricing.

Second, Australians can surcharge debit cards, unlike in the US. Which we always thought was unfair since US debit cards are expensive: they come with rewards, and thanks to the Durbin amendment are a massive profit center for acquirers now.

Third, the mechanics of this Australian boondoggle bill are hilarious.

The Reserve Bank of Australia (RBA), estimates that consumers pay $1.6B in surcharges. Their proposal is that the banks will simply reduce interchange by $910M to help the merchants with the $1.6B in lost revenues.

Even if you believed this, merchants are already getting shafted to the tun of $700M.

In reality, banks will just find another mechanism to charge the merchant.

Interest rate increases.

Minimum fees for accounts.

Whatever.

And we’re not begrudging banks for making a profit: they have shareholders too.

But we ARE upset that the merchants are hostage to the credit card system and the banks just abuse them.

This is what an oligopoly looks like: nominal differences, same results.

Copying directly from the article:

The Australian Hotels Association criticised the ruling, with the chief executive, Stephen Ferguson, saying it wouldn’t make the typical coffee or beer any cheaper.

“What was the purpose of the whole exercise if it wasn’t to decrease costs for consumers?” he said.

Duh.

Last comment on the article itself which will get us to our final point:

Australians have told the RBA they would prefer to know the final price, even if it was higher, instead of being caught with a hidden fee.

Nobody likes a surprise fee.

There’s been a ton of US regulation over this same issue going back to the Biden Administration.

This is why dual pricing is the absolute fairest method of passing the cost of card acceptance.

Businesses should 100%, without question have the right to display their costs however the hell they want.

It seems to us like reasonable costs are just baked into the merchant’s prices: labor, rent, utilities, other COGS.

When businesses feel strongly about something being unfair, they put it in a separate line item.

Credit card costs – especially in the US – are extracticve.

Hard stop.

There are way too many fat, oily hands in the cookie jar.

The absolute-fairest handling of this is to provide a discount to people who do not use cards.

Businesses mark up their core product, then drop their price when the cost of that payment is lower.

Doing this in a convenient way for the merchant (ie cash discount) is ideal.

But logistically speaking, it should be digital account-to-account payments so as not to increase cash in the business.

That’s because cash comes with its own real costs: theft, transport, etc..

We’ve discussed the logical merit of this in a previous article.

Surcharges are good, the card payment oligarchs have outlived their useful purpose, and most of the world desperately needs a better way to move money.

Until then, the Aussies gets to suffer.