The Independent Payments Forum (IPF), an advocacy group representing over 120,000 small and medium businesses across Australia including newsXpress members (newsXpress is a paid-up member), has issued a stark warning to the Reserve Bank of Australia (RBA). In a detailed submission, the IPF argues that the RBA’s proposed ban on card payment surcharging, without first addressing the “inequitable, high fees” paid by small businesses, will stifle competition, harm productivity, and create upward pressure on inflation.
The comprehensive submission is a response to the RBA’s “Review of Merchant Card Payment Costs and Surcharging” consultation paper. The IPF contends that the RBA’s proposals are based on flawed assumptions and will have far more serious consequences for the Australian economy than the central bank’s modelling suggests.
Surcharging more widespread than RBA believes
A central point of contention is the prevalence of surcharging. The RBA’s paper suggests that only 10% of businesses currently surcharge for card payments. However, the IPF’s survey data paint a different picture, indicating the figure is closer to 45% among “high street businesses”. In some sectors, such as pubs, clubs, cafes and restaurants, the number of businesses applying a surcharge is as high as 79%.
This significant discrepancy, the IPF argues in its submission, “throws serious doubt on the RBA’s associated economic impact assumptions”.
Price hikes and job losses possible
If a surcharge ban is implemented without a significant reduction in underlying fees, small businesses have indicated they will have little choice but to raise prices how else are they to cover the business cost. According to the IPF’s current research, 56% of businesses would be forced to increase their prices to cover the new costs. A further 8% would need to let staff go, and 5% fear they would go out of business entirely.
The IPF highlights that many small businesses, such as newsagents and cafes, operate on razor-thin profit margins. In our newsagency channel the problem is compounded boy us selling products over which we have no control as to retail price. Absorbing a typical 1.4% blended merchant fee could reduce a newsagents typical gross profit on magazines by 5.6% and on newspapers by 11.66%.
Price increases would affect all consumers, including those who choose to pay with cash, as businesses would be forced to build the cost of card acceptance into their general pricing. Again, newsagents are limited as to what they can do here. The IPF submission points to comments from Qantas, which has already stated that the cost of acceptance “will likely be passed on to our consumers and our passengers through higher ticket prices”.
The inability of price increases for newsagents with papers, magazines, cards, lottery products and a bunch of other services disadvantages our channel. It places a burden on local small business newsagents that some businesses will not survive.
The real problem: blended rates, failed LCR, and unregulated scheme fees
The IPF submission argues that banning surcharges targets a symptom, not the cause of the problem: decades of market failure that has left small businesses paying disproportionately high fees. They call for urgent policy reform in three key areas:
- Ban Blended Rates: The practice of charging a single “blended” flat rate for both debit and credit card transactions results in higher prices for small businesses. It forces businesses to cross-subsidise expensive credit cards with cheaper debit card transactions. Meanwhile, big businesses are offered more transparent and cheaper “interchange++” plans.
- Mandate Dynamic Least-Cost Routing (LCR): LCR is designed to route dual-network debit card payments through the cheapest network available, delivering savings to merchants. However, the IPF states that the industry’s self-regulated adoption of LCR has been a “complete failure,” with banks and payment providers failing to pass savings on. The IPF is calling for the RBA to mandate “opt-out Dynamic Least-Cost Routing,” which they claim could reduce debit transaction fees for some businesses by up to 70%.
- Regulate and Cap Scheme Fees: Fees charged by international card schemes like Visa and Mastercard remain unregulated and have been rising, putting upward pressure on costs for merchants. The IPF argues that the RBA’s proposal to merely “set an expectation” that these fees won’t increase is insufficient. Citing the complexity of over 400 different fee categories, the IPF joins calls from banks like Westpac for these fees to be regulated and capped.
A path forward: key recommendations from the IPF
To create a fairer and more competitive payments system, the IPF has put forward a series of recommendations to the RBA, including:
- Ban blending of debit and credit card fees for small businesses.
- Mandate opt-out Dynamic LCR to ensure savings are passed on to merchants.
- Regulate and cap scheme fees.
- Delay any surcharge ban for 12 months to allow businesses time to renegotiate contracts with service providers, and in the case of newsagents to negotiate with suppliers who control newsagent gross profit.
- Fund an independent comparison tool to help merchants navigate complex fee structures.
- Re-evaluate interchange fees, suggesting higher caps for high-fraud overseas transactions and near-zero rates for secure domestic transactions.
All of this should matter to newsagents. In our channel though, it is only ALNA and newsXpress who have invested in this representative vital work by the IPF.
This issue is an example of an issue newsagents can use to compare marketing groups. Here is newsXpress investing money to lobby for fairness for all newsagents. This is work being done, for newsagents. No marketing puffery, just practical work for costs that are at the core of every newsagency business.
The submission by the IPF is good, well thought out, professional. I am proud and grateful that newsXpress is part of this.
You can help by asking your local member of federal parliament where they stand on this matter.
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Mark Fletcher founded newsagency software company Tower Systems and is the CEO of newsXpress, a marketing group serving innovative newsagents keen to evolve their businesses for a bright future. You can reach him on mark@newsxpress.com.au or 0418 321 338.