This week, the Australian government took a significant step toward addressing the long-standing issue of excessive merchant fees, with Prime Minister Anthony Albanese committing the Reserve Bank of Australia (RBA) to conduct a comprehensive review.
The move is expected to ease the financial burden faced by small and medium retailers, who typically pay much higher transaction costs for debit card payments than their larger counterparts, and comes along side the allocation of $2.1 million to the Australian Competition and Consumer Commission (ACCC) to ensure that these smaller businesses are protected from unfair surcharging practices.
While the initiative, encompassing the dual prongs of the review and the unfair practices protection activity, has been widely welcomed by retail industries and the Australasian Convenience and Petroleum Marketers Association (ACAPMA), its CEO Mark McKenzie cautions that there is still much work to be done to secure meaningful outcomes and reduction in merchant fees for small and medium-sized businesses.
A Long-Awaited Review
For over a decade, ACAPMA, along with other industry bodies representing small retailers, have called for a reduction in merchant fees, which continue to impose significant costs on businesses that are operating on thin margins. Small and medium retailers pay between 1% and 2.5% in merchant fees for debit transactions, according to the RBA. This is in stark contrast to larger businesses, which typically pay less than 1%. The discrepancy means that smaller retailers are shouldering an unfair share of the burden when it comes to transaction fees.
Prime Minister Albanese’s announcement comes as a welcome development in this frustratingly long and ongoing fight.
In announcing the initiative the Prime Minister emphasized the importance of reducing costs for small businesses; “We are determined to make life easier and cheaper for all Australians. By reducing merchant fees, smaller retailers would be better positioned to pass on savings to customers, helping to boost competitiveness in sectors that operate on razor-thin margins”.
ACAPMA welcomes the announcement, with caution
Despite the positive tone of the announcement, ACAPMA’s CEO Mark McKenzie remains only cautiously optimistic.
McKenzie noted that this is not the first time an Australian Government has committed to reviewing merchant fees, and that those previous reviews failed to deliver any tangible outcomes.
“This is not the first time that an Australian Government has committed to a review of merchant fees,” McKenzie said.
The RBA conducted a similar review in 2021, which followed an ACCC investigation into a proposed merger of Eftpos and other electronic payment systems to create a single national payments entity controlled by the major banks and big retailers. That proposed merger was seen as problematic for small and medium retailers due to potential conflicts of interest of the Big Banks and Big Retailers, but the merger was still approved by the ACCC in late 2021.
Given that these past efforts failed to deliver tangible reductions in merchant fees, and noting that the cost of debit transactions has actually increased in recent years given the growing use of payment gateways like Apple Pay, ACAPMA is keen to ensure that this latest review delivers real reductions in merchant fees, not just hype.
Disparity in fees levied on big and small businesses
One of the key issues raised by ACAPMA in the past relates to the significant disparity in fees levied by banks on small versus large businesses – despite the fact that there is no significant difference in the cost of processing an electronic debit transaction of a small business versus a big business.
According to the RBA, an estimated 75% of Australian businesses, which typically excludes the biggest retailers in the country, pay between 1% and 2.5% in merchant fees for debit transactions. The wholesale cost of processing a debit transaction averages just 0.2% of the transaction value. This means that Australia’s banks are making a gross profit of between 500% and 12,500% on debit fees levied on the vast majority of small and medium retailers.
“While Australia’s banks can expect to make a fair return from the delivery of merchant fee services, the RBA figures suggest that Australia’s Big Banks and global credit card companies are making excessive profits on the debit fees paid by Australia’s small to medium retailers. This cost is ultimately passed through to consumers in the form of direct surcharges or higher costs for products and services,” McKenzie emphasized.
The wide disparity in fees puts smaller retailers at a significant disadvantage compared to their larger competitors, who can leverage their size to negotiate lower rates with banks. This fee imbalance also makes it harder for small businesses to remain competitive, especially in industries where margins are already tight, such as the fuel retail and convenience industry.
The continuing role of the Independent Payments Forum
ACAPMA, in partnership with other industry bodies such as the Australian Association of Convenience Stores, the Council of Small Business Organisations of Australia, and the Master Grocers Association of Australia, has long advocated for fairer merchant fee structures. Together, these groups are members of the Independent Payments Forum, which aims to ensure that small and medium retailers are not left out in discussions about payment systems and fee structures.
As a founding member of the forum, ACAPMA has been a key voice in pushing for meaningful changes to Australia’s payment systems. The forum will continue to work with the government and regulators to ensure that the latest review delivers real reductions in merchant fee costs for small businesses, particularly fuel retailers who have been hit hard by these excessive fees.
Opposition to a premature ban on surcharging
While ACAPMA supports efforts to reduce merchant fees, the association remains opposed to any government moves to ban surcharging until fees are made fairer for businesses of all sizes. Surcharging allows businesses to transparently pass on some of the transaction costs to consumers, helping to offset the impact of high merchant fees.
“ACAPMA will continue to oppose any ban on surcharging by the Australian Government unless or until merchant fees are made fairer for Australian retail businesses regardless of their size,” McKenzie said.
Looking ahead
As the RBA begins its review of merchant fees, small and medium retailers across Australia will be watching closely to see if the government’s latest efforts will finally deliver the relief, they have been seeking for more than a decade. While there is cautious optimism, the experience of past reviews has left many in the industry sceptical about the potential for real change.
For its part, ACAPMA remains committed to advocating for a fairer deal for small businesses and ensuring that any changes to the payment system result in tangible benefits for the majority of Australian retailers. The next few months will be critical in determining whether the government’s review will succeed where others have fallen short, and whether small retailers will finally see a reduction in the excessive costs they face for simply processing payments.
In the meantime, ACAPMA and its partners in the Independent Payments Forum will continue to push for reforms that deliver long-overdue fairness in Australia’s payment systems.
ACAPMA
