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One of Australia’s Big Four banks has called on regulators to prohibit acquirers from offering bundled pricing, and to implement a ban on debit card surcharging.
In a submission to the Reserve Bank of Australia’s (RBA) consultation on surcharging, Westpac has said that blended pricing makes it difficult for merchants to understand their payment costs, resulting in excessive surcharging of consumers.
In the submission, which has not yet been made public, Westpac argues that prohibiting blended pricing would lead to fairer and more transparent payment costs for merchants and consumers.
“One of the ways to achieve this is to reduce the complexity of interchange and scheme fees, which have led to a situation where fees are blended into a single flat rate for simplicity,” said Westpac.
“This does not result in the right price signal being made to consumers when choosing whether to use debit or credit cards for different transactions.”
Blended pricing, which is currently the norm in Australia, typically means that merchants pay a flat fee to accept any type of card transaction.
But critics of the model, including RBA assistant governor Brad Jones, have said that blended pricing leads to users of lower-cost payment methods subsidising users of higher-cost payment methods.
“Many small merchants are now on blended or single-rate payment plans that charge the same fee to merchants for accepting all types of cards,” Jones said in December.
“This dulls the price signal to consumers, and can mean users of cheaper card payments cross-subsidise users of more expensive cards.”
At present, debit card transactions make up around three-quarters of all card payments in Australia.
Moreover, 90 percent of debit cards in the country are dual-network, meaning they can route transactions via eftpos, Australia’s low-cost domestic scheme.
On average, eftpos costs about 20 basis points per transaction, but due to blended pricing, merchants are not currently enjoying the savings offered by these low rates.
Instead, many merchants are locked into blended plans like those offered by Square, which charges a flat fee of 1.6 percent for in-person card transactions and 2.2 percent for card transactions online.
Square’s pricing structure is perhaps the most extreme example of eftpos savings not being passed on to merchants, but it is by no means the only example.
Westpac itself, despite calling for an end to the practice, currently offers a range of blended pricing plans to merchants.
Growing calls for surcharge ban
According to Jones, the RBA has received more than 70 submissions to its consultation on surcharging, which closed in early December.
The RBA plans to publish all of these submissions in January 2025, although Westpac broke ranks by seeding some of its key points to the media last month.
Grant Halverson, CEO of payments consultancy McLean Roche, shared his full submission with Vixio in December.
Although Westpac has called for a ban only on debit surcharging, Halverson wants the RBA to ban surcharging across all card types.
He noted that Australia’s surcharging framework has been in place since 2003, but to date no other major economy (apart from New Zealand) has followed its lead in formalising surcharging.
Instead, similar economies have been moving in the opposite direction, with both the EU and UK, for example, banning surcharging across all card types in 2018.
Halverson argues that Australia’s surcharging framework was a mistake from the outset and has never been “fit-for-purpose” — in the words of the RBA.
The framework states that merchants may surcharge consumers the actual cost of a card payment and no more, but due to the lack of enforcement of these rules, surcharging has in practice become a “free for all”.
As detailed in McLean Roche’s submission, 90 percent of Australian retailers use surcharges, and surcharges of 10 or 15 percent are not uncommon (particularly on weekends and public holidays).
“This is the reality in Australia, with excessive, uncontrolled surcharging — much of it illegal and inflationary,” said Halverson. “This is what consumers face every day.”
However, the submission argues that surcharging is driven by “robust gouging” of merchants by their acquirers.
Blended pricing allows acquirers to generate “amazing returns” by processing mostly debit card transactions, said Halverson, and then merchants seek to recoup their payment costs by surcharging consumers.
“The ability to charge consumers surcharges, in many cases at excessive rates, removes any need for merchants to seek out the lowest cost from acquirers,” he said.
Government favours debit surcharging ban
In October, when the RBA opened its consultation on surcharging, the Albanese government said it was in favour of a ban on debit surcharging.
In a statement published alongside the consultation, Prime Minister Anthony Albanese said that easing the cost of living is his government’s “number one priority”, and that a ban on debit surcharging is one way of doing so.
Treasurer Jim Chalmers also said he favours a ban on debit surcharging, a move that the government is prepared to implement from January 1, 2026.
“This is all about getting a better deal for consumers, reducing costs for small businesses and promoting a more competitive payments system,” he said.
