This article first appeared in The Australian Financial Review on 29 July 2025.

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Paying a fee in order to spend your own money is a strange state of affairs.

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It offends against common sense and the basic principles of commerce. It would find a ready home in a Kafka novel, but should have no place in the real world.

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But this is increasingly what is happening every time you tap your card and make a payment.

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Not only do you pay for the good or service when you tap your card at the cafe, hairdresser, or dry cleaner – but increasingly you are also hit with an additional fee, or surcharge, payable to the business for accepting your electronic payment.

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These fees, while individually small, collectively add up. The Reserve Bank of Australia calculates that Australians paid $1.2 billion in card surcharges last year.

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That’s about $60 per year for every Australian who uses a card.

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Often these surcharges are not disclosed up front, but only revealed at the point of sale: either when the transaction is finalised when shopping online, or when the card is tapped in person.

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“Nobody should be charged a fee just for the privilege of spending their own money.”

— Dave Sharma

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With fewer people carrying cash and the growth of online commerce, avoiding fees by paying cash is often not an option. As card payments have become the rule rather than the exception, the discrepancy with cash has become particularly stark.

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Cash payments come with costs, too. The cost of processing a cash transaction, for both business and bank, is almost 1 per cent of the transaction value. Recent estimates suggest cash is two times more expensive for merchants to accept than card payments, due to higher back office and labour costs.

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But this cost is absorbed. Consumers would revolt if any business started to impose an additional “cash handling fee”.

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An electronic transaction costs far less to process than a cash transaction. Once the systems are in place, it is simply the movement of electrons and bytes of data. Yet somehow we have become so accustomed to paying surcharges on card transactions that many Australians accept it as a fact of life.

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For those who benefit the most from these surcharges – mainly the banks and the card issuers – they like it that way.

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The normalisation of this state of affairs has been allowed to develop by stealth, not design. That is why the review by the Reserve Bank of Australia into card surcharges is both welcome and overdue.

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The RBA’s review identifies three main dynamics at work. First, the merchant service fees – the fees paid by businesses to accept card payments – are higher in Australia than in many other comparable economies.

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Second, small businesses are bearing the brunt of this. Large businesses can usually negotiate lower transaction costs. Small businesses are often stuck with the standard terms and fees. RBA research suggests the average per-transaction fee paid by small businesses is around three times that paid by large businesses.

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Finally, the unique factors at work in a well-established payment card network do not lead to downwards pressure on prices. In fact, and somewhat counter-intuitively, the competitive dynamics tend to drive higher fees.

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The RBA’s proposals to address this failure of competition are sensible.

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The abolition of card surcharges would bring card payments in line with cash and be of immediate benefit to consumers and households, saving them a collective $1.2 billion. Mandating the reduction of wholesale fees linked to card use will benefit merchants, and particularly small businesses. The RBA estimates that 90 per cent of businesses would benefit from this reform.

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Increasing the transparency of card payment costs, so businesses can shop around for better deals, will also help inject genuine competition into this sector.

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The RBA’s proposed reforms offer a considered way forward, towards a more modern and competitive payments system that is more friendly to consumers and small businesses alike.

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The market works best when it’s transparent, competitive and fair – and the Coalition will support sensible reforms that uphold these principles. That means empowering small businesses and consumers with choice, not penalties.

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But to live up to their promise, these proposals will need to be carefully implemented. For the reforms to work, the whole RBA package will have to be introduced fully and properly sequenced to ensure small businesses do not shoulder any additional burden.

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Reductions in wholesale fees will need to be passed on to businesses and ultimately consumers. Surcharges will have to be abolished directly if necessary.

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The true test of these reforms will be whether they reduce the overall cost to consumers, rather than just shifting them around, and whether the changes help level the playing field for small business.

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Addressing card surcharges is an overdue reform. After all, nobody should be charged a fee just for the privilege of spending their own money.