On 15 July 2025, the Reserve Bank of Australia (RBA) released a consultation paper (the Consultation Paper) as part of its review of merchant card payment costs and surcharging (the Review). The Consultation Paper proposes draft standards that would implement the preliminary conclusions of the Payments System Board (PSB) following an earlier extensive public consultation process undertaken after the release of the Issues Paper in October 2024. The PSB is a key policy-making body within the RBA.
Key points
- Merchant surcharges on prepaid, credit and debit card networks to be removed: RBA proposes to lift the prohibition on “no-surcharge” rules for the designated debit, prepaid and credit card systems (EFTPOS, Mastercard and Visa).
RBA does not have the direct power to ban merchants from surcharging and the expectation is that the schemes will indirectly regulate the merchants so that they do not surcharge. If the RBA’s overall purposes are not achieved, then specific government legislation could follow in the future with a specific ban on merchant surcharging practices.
- Lower interchange fee caps: RBA proposes lower caps for interchange fees on domestic credit and debit card transactions and introduces an interchange fee cap on foreign issued credit and debit cards. The average-weighted benchmark for domestic credit card transactions is also proposed to be abolished.
These changes will have the effect of lowering the maximum interchange fees that the acquirers (ie merchant’s payments providers) are required to pay to the relevant card issuers. It is hoped that this will have the flow on effect of reducing the merchant’s cost of acceptance for cards.
- Increased fee disclosures: Card schemes (eg Visa and Mastercard) and large acquirers will be required to publish more detailed cost and fee data.
Recap
The RBA has relied upon regulatory powers provided by the Payment Systems (Regulation) Act 1998 (Cth) since the early 2000s to implement the payments system policy set by the PSB, including by introducing standards and access regimes relating to card payments and periodically reviewing these regulations to ensure they remain fit for purpose.
The purpose of the Review was to determine:
- whether regulatory settings could be adjusted to put further downward pressure on merchant card payment costs; and
- whether the RBA’s surcharging framework remains fit for purpose.
For context, the below diagram taken from RBA’s ‘Backgrounder on Interchange and Scheme Fees‘ shows the flow of fees between the different players in RBA regulated payments system. In addition to the payment flows shown in this diagram, it has also become common for merchants to charge a ‘surcharge’ to customers to recover their costs of acceptance for the card.
Proposals of the PSB
The Consultation Paper presents the preliminary conclusions of the PSB on the matters discussed in the Issues Paper and includes for consultation some draft standards that would implement the preliminary conclusions. The RBA seeks comments on these preliminary conclusions and draft standards, with the expectation that the PSB will reach its final conclusions by the end of 2025.
The PSB has proposed the following:
- Removing the RBA’s current prohibition on ‘no-surcharge’ rules for debit, prepaid and credit cards for designated schemes.
- Changes to interchange, including:
- in relation to domestic debit (and prepaid) card transactions, reducing both the interchange fee weighted-average benchmark and the ad-valorem cap;1
- in relation to domestic credit card transactions, reducing the interchange fee cap2 and abolishing the weighted-average benchmark;
- in relation to foreign-issued card transactions (credit or debit), introducing a cap on the interchange fees acquired in Australia;3 and
- extending the application of net compensation provisions to transactions acquired overseas and Australian issuers sponsored by overseas entities.The PSB also concluded that it remains unconvinced that commercial and consumer credit cards justify different treatment when determining the level of interchange cap and benchmarks that should apply to each category of cards.
- Improving wholesale fee transparency and reducing complexity by:
- requiring card networks to publish quarterly aggregate scheme fee and interchange fee data, broken down by key transaction types; and
- expecting card networks to work with industry to uplift scheme fee schedules.
- Adopting an expectation that the average scheme fees per transaction should not increase without a clear explanation. Scheme fee increases should be accompanied by clear justification such as outlining reasons for increases. Such reasons could include additional value propositions funded by fee or disincentivising inefficiencies in the market.
- Improving the transparency of merchant service fees by:
- requiring acquirers processing in excess of $10 billion in card payments annually, to publish their merchants average costs of acceptance quarterly with a break down by merchant size and card type; and
- amending cost acceptance reporting on merchant statements by acquirers to include a breakdown of domestic and international transactions.
- The PSB does not consider it necessary to mandate least-cost routing (LCR), noting that merchants currently have the option to enable LCR of debit card transactions, particularly in face-to-face environments. LCR is a reference to a merchant being able to choose to send the debit card transaction via the debit network (eg EFTPOS) that costs them the least to accept.
Why now?
Surcharging is no longer achieving its intended purpose
The PSB has recognised that the surcharging framework has become less effective in achieving the public interest in recent years, criticising existing surcharges for failing to achieve their purpose of driving more efficient payment choices in an increasingly cashless economy. This has become especially true in the current economy where fewer consumers are using cash.
The removal of surcharges would align with the practices adopted in the United Kingdom and most of Europe.
It is expected that consumers would pay around AUD1.2 billion less in surcharges per year.
High interchange fees
Despite regulatory intervention, the interchange fee schedules have grown in complexity and small businesses pay much higher interchange fees than large businesses. It is expected that lower interchange fees would reduce the need for merchants to raise their consumer prices to compensate for no longer being able to surcharge. This could save businesses around AUD1.2 billion in interchange fees a year.
Rising scheme fees
The PSB observed that scheme fees have risen over time, putting upward pressure on card payment costs for merchants. The rise in scheme fees may reflect a lack of competition in the card payments market. There is also considerable variation in scheme fees between different card networks. The PSB has not ruled out further regulatory measures should scheme fees continue to grow faster than transaction values.
More transparency needed over card payment fees
The PSB has highlighted that the distinct lack of publicly available information on merchant service fees has an adverse impact on competition. This is because the opacity makes it more difficult for merchants to compare pricing across providers and to switch to competing payment service providers for better pricing. The PSB agreed that transparency of pricing would become more important as a tool for placing downward pressure on card payment costs for merchants if their ability to surcharge were to be removed.
What is next?
Submissions on the Consultation Paper will remain open until 26 August 2025.
The RBA is expected to publish its conclusions, including any regulatory changes by the end of the year.
Any resultant changes are likely to come into effect in 2026.
The fee cap and merchant-level disclosure changes are proposed to take effect on 1 July 2026. The scheme operator and acquirer data reporting changes proposed to take effect from the reporting periods 1 July 2025 to 30 September 2025 and 1 January 2026 to 31 March 2026 respectively (but in both cases, the first publication date being 30 July 2026).
Please contact us if you would like to discuss the RBA’s proposals or would like assistance in preparing a submission to the RBA.
This article was written by Mizu Ardra, Partner, Mareejoseph Gittany, Senior Associate, and Yvonne Nehme, Senior Associate.
1 Interchange fees would be reduced to a weighted-average benchmark of 6 cents and an ad-valorem cap to 0.12 per cent of transaction value.
2 The cap would be reduced to 0.3 per cent of transaction value.
3 The cap would be 0.2 per cent transaction value for debit and 0.4 per cent for credit in relation to card-present transactions, and 1.15 per cent for debit and 1.5 per cent for credit in relation to card-not-present transactions.
