Australia’s surcharge ban is being presented as a consumer win, and at the checkout it is one. For merchants it is a cost transfer. The fee a surcharging business used to pass on now sits in its own margin, and the main tool left to cut it is least-cost routing, which the Reserve Bank of Australia has chosen to leave in the hands of acquirers.
Since October 1, surcharges are barred on eftpos, Mastercard and Visa debit, credit and prepaid cards, after the RBA removed its prohibition on network no-surcharge rules and the three designated networks introduced them. American Express, UnionPay and PayPal followed. Discounts for cheaper payment methods remain allowed.
The cost moves from the receipt to the margin
The RBA estimates that consumers paid about A$1.6 billion of the A$1.8 billion in card surcharges each year. That money now has to come from prices or from merchant margins. Most merchants are unaffected: 85% of small and 89% of large merchants did not surcharge. For the minority that did, the ban is a direct cost increase until prices adjust. Some large merchants that never surcharged told the RBA they used the threat of it as a bargaining tool with their providers, and they lose that too.
The offset is lower interchange. The RBA cut the caps on consumer credit from 0.8% to 0.3% and on debit to 8 cents or 0.16%, and foreign-issued cards will be capped at 1.0% from April 2027. The average gap between debit and credit interchange narrows from 0.4 percentage points to about 0.25. Issuers lose about A$660 million a year.
Lower interchange only helps a merchant if the acquirer passes it on. Merchants on unblended plans receive the cut automatically. Merchants on blended or single-rate plans, which the RBA has kept as an option for simplicity, depend on their provider to reprice. Plans that offered merchants zero fees by surcharging customers lose their basis entirely.
Least-cost routing is the only lever left on debit
With surcharging gone, a merchant’s practical tools are discounts, price changes and routing. Least-cost routing sends a dual-network debit payment to the cheaper of eftpos and the international network. Small merchants already pay about 0.13 percentage points more on debit than merchants on strategic rates, and routing is one of the few ways to narrow that gap without negotiating power.
The RBA declined to mandate the stronger version. Its impact assessment says acquirers “retain the choice to implement their preferred method of LCR, since the RBA is not requiring them to implement dynamic LCR.” That leaves the switch on routing, and the pricing around it, as a commercial decision for each acquirer. Some debit stakeholders told the RBA that interchange on debit already sits below benchmark because of competition and LCR, which shows the tool works where it is used.
The ban covers credit as well as debit, partly to spare the eight million holders of combination cards, which work as credit or debit depending on how they are presented, from checking which function avoids a fee. That simplifies the checkout. It also means routing decisions are invisible to the customer and sit wholly with the merchant’s provider.
The fight therefore moves to acquirers. The networks set interchange; acquirers decide whether a small merchant’s tap on a debit card goes down the cheaper rail and whether the saving shows up on the statement.
Disclosure is the RBA’s substitute for a mandate
In place of a routing mandate, the RBA is relying on transparency. From October 30, networks and acquirers must publish their fees, and acquirers processing more than A$10 billion a year must publish average merchant service fees. Pass-through data is due by January 30, 2027, merchant statements change from April 1, 2027, and scheme fee roadmaps are due the same day.
Published averages give small merchants a benchmark to compare quotes against. They also give the RBA evidence. If January’s data shows that interchange cuts and routing savings stopped at the acquirer, the case for mandating dynamic LCR becomes much harder to resist.
Bottom line
The surcharge ban returns card costs to merchants and offsets them with lower interchange. Whether small merchants come out ahead depends on pass-through and on routing, and the RBA has left both to acquirers, backed by disclosure. The first published fees, due October 30, will show which acquirers are passing savings on.
Watch for:
- Acquirer and network fee publication by October 30
- Pass-through data on January 30, 2027
- Any RBA signal on mandating dynamic least-cost routing