On September 1, the Reserve Bank of Australia introduced a ban on businesses charging excessive payment surcharges on credit card purchases, limiting surcharges to the cost of processing the payment. The RBA has indicated, as a guide, that the costs to merchants of accepting payments by debit cards is in the order of 0.5 per cent, by credit card is 1-1.5 per cent, and for American Express cards it is 2-3 per cent.
Some merchants’ costs might be higher than these indicative figures. For the first year the law only applies to large businesses, defined as having two of the following: gross revenue of $25 million or more, gross assets worth $12.5 million or more, or 50 or more employees. It will apply to all businesses from September 1, 2017.
Retail World talked with consumer advocate Christopher Zinn about the changes and the benefits of retailers going surcharge free.
Could you provide an overview of the RBA changes to credit card surcharge rules?
In 2003, the RBA removed the ‘no surcharge’ regulation. Some of the subsequent surcharges have been undoubtedly excessive, notably the flat fee airline charges, which have bitten the dust as of yesterday. The regulation, I think, almost encourages businesses to say that they can charge the reasonable cost of acceptance. The regulations mean that businesses will get an annual statement showing them what the costs are more clearly, so that they can surcharge more clearly.
The Government has pitched this as a windfall for families and, while some airline fees may be a little less and that’s great, I think it’s a little premature to say that money will be saved. They could face additional surcharging, albeit at lower rates. The RBA themselves don’t talk about this change saving consumers money. They talk about the whole reform giving the businesses more clarity in terms of what their surcharging costs should be.
So the RBA regulation changes could lead to surcharging becoming more widespread?
I think there’s a real risk of that. It’s hard to know, but I think that we’ve seen the spread of surcharging. Any business is well within its rights to surcharge, but, unlike the Government, a key element of business is competition, ie, people can go elsewhere. We believe, and this is backed up by many businesses, that there is a competitive advantage in not surcharging, in absorbing those costs as businesses absorb many costs in doing business.
This is in an environment where the amount of cash that people use is in decline. The use and uptake of other payment systems, such as cards, tap and go, Apple Pay, etc. have come in. We are going to see a lot of changes in this area. The idea that you should protect cash and surcharge everything else is a little old-fashioned and not necessarily good for business.
What is Surcharge Free?
It’s about a very non-controversial idea around surcharging, which is very controversial for consumers: they hate it. Ninety per cent would like to see it abolished altogether. One in three would not go back to a business, or give repeat business, if they have been surcharged. We know that consumers don’t like it. The campaign aligns consumers with businesses that choose not to surcharge, and then shares those stories with other businesses that are either consider surcharging or already surcharging.
I think the argument, simply put, is that there is a cost to accepting cards, but there is also a cost in accepting cash. The cost to your business by charging a surcharge may be greater than the cost of accepting cards, in terms of the loss of repeat business, the loss of consumer goodwill, and those kinds of issues. We merely seek to get businesses that don’t surcharge to share their stories. We issue point-of-sale material and cards to put by the till or in the front window, just to say that they are ‘surcharge free’. We believe this gives them a competitive advantage and think it’s in the businesses’ own interests to absorb those costs and be loud and proud about that fact, to advertise it. There are plenty of businesses that do that and their story is that it’s worthwhile for them.
Will this become even more important with the expansion in online retailing?
Part of the problem is that it’s only when you get to the end of your customer journey online that you find out the true costs in terms of delivery and any credit card surcharge. Regulation has gone so far – consumers, we know, hate surcharges, but I think that if you can have a surcharge-free logo on your website, then that’s perhaps a pretty good way to get consumers to check out your offerings. It doesn’t come at great cost to businesses to absorb the costs of acceptance. In the very fickle world of the online market, I’d suggest that clearly stating that one is surcharge free could have great benefits, especially because, when buying online, so many people do pay with those kinds of cards.
How much of a cost will retailers absorb if they don’t surcharge?
The merchant service fees, which is the bulk of the cost of the terminal hire, have been falling over time and the use of cash has been falling. I have talked to small businesses which say that fees cost them $30,000 a year, equivalent to a junior employee. But what is the cost to them if they only dealt in cash? What’s the cost to them in terms of the credit surcharge leading to a lack of repeat business? An interesting piece from the Reserve Bank was that smaller merchants see a cost to handling cash in terms of accounting, banking and loss of about 2.5 per cent. For most small businesses that’s not very visible, because that’s wrapped up in staff time as opposed to a bill that arrives which has to be paid and is much more visible. At the end of the day, it all has an implication for the bottom line.
How do businesses get involved if they are interested in joining the Surcharge Free campaign?
Simply go to www.surchargefree.com.au, see who else is involved and their rationale for that. You can download some of that POS material and make a pledge in terms of not taking a surcharge. The site will promote what you do. I would like to say to businesses, particularly smaller ones, that it’s a year until the regulations affect you. You have two choices. You could spend that year sticking with the surcharge or you could do a year without a surcharge. See what difference that makes to your business in terms of customer satisfaction, in terms of repeat business, and then, at the end of the year, look at that analytically.
You may well find that you have no need to put a credit card surcharge back on. You may become a proponent of Surcharge Free. I think that it’s an experiment that can be done for low effort and relatively low cost, but the return in terms of building your business could be more considerable.
Anything to add?
The one thing I’d say, with this campaign, it’s backed by American Express, but also other retailers and retailer groups. The interests of these people are aligned with consumers, who don’t like surcharges. These are businesses that don’t surcharge. It’s in their interests to tell consumers about that so that we don’t get to a situation, perhaps because of the regulations, that the surcharge is seen as normalised.
I don’t think that it’s a normal thing. While it might seem in some cases be trivial, there is an important principle at stake, and I think going into a future where we see less cash and different payment systems, the idea of a surcharge seems more and more of an anachronism.