The Reserve Bank of Australia's (RBA) ban on surcharges for debit and credit card payments, proposed to take effect on 1 July 2026, will, if accepted, significantly reshape the payment methods used in your store. This reform targets surcharging fees that retailers add to transactions paid for using Visa and Mastercard.

I am building on my article from yesterday, which sparked lively discussions. Let's explore the key issues you should consider.

Firstly, this proposal does not address the cause of why people charge these surcharges; the symptom of the surcharge is not the cause. Nor does it address the fact that SMB businesses pay significantly higher fees than larger organisations, often 350% more. The only point mentioned here that is relevant is the greater transparency in the costs. However, it's become quite transparent now. When I reviewed my EFTPOS and credit charges last time, I got, among other documents, a charge table showing the rates the bank would charge depending on my turnover and average transaction value.

If the proposal is accepted, likely fallouts include reduced cash transactions, increased credit card usage, continuing fee disparities between SMBs and large organisations, and some inflationary pressures.

Exploring the Key Fallouts if the Proposal Proceeds

Why Cash Might Fade Faster

13% of payments were made using cash in 2022, which is down from 70% in 2007, and that number is projected to fall to just 4% by 2030, according to Australian Banking Association.

Cash has long been popular for small, everyday purchases, such as a quick coffee or a newspaper at your local shop. Its appeal lies in the simplicity and lack of fees for both you and the customer. However, with surcharges banned, the cost barrier between cash and cards vanishes for consumers. Why would they dig for coins when tapping a card costs the same? This shift would further diminish the role of money, accelerating a trend already evident in Australia, which is what the Australian government aims to achieve.

Beyond diminishing cash use, we can expect to see a greater use of credit cards, as this ban would also equalise charges, leading to another key shift: many will ask, Why use debit when they can get credit for free?

Debating the Consumer Savings and Business Losses

The RBA estimates that Australian consumers could save nearly $1.2 billion annually if the proposal is implemented, equating to approximately $60 per card-using adult. This figure is debatable. Much of this money will shift elsewhere in the system, rather than disappear. That $1.2 billion represents a substantial loss to Australian businesses, particularly the large issuers of debit and credit cards, who stand to take significant revenue hits if the reforms proceed in their current form without changes.

Fee Hikes

Major banks will seek to recover losses from lowered interchange fees.

Running payment networks for Visa, Mastercard, and EFTPOS is enormously expensive. The cost of infrastructure, security, and global operations costs won't disappear under this plan.

Banks will need to pass these costs on somewhere. They might increase cardholder fees, such as annual charges or interest rates. But hiking merchant fees through administration charges is more likely.

Uncertainties Around Overseas Cards and Surcharging

It's unclear whether the plan will allow surcharges on overseas cards, such as American Express or a Visa issued in Singapore. I suspect that some form of surcharging will still be permitted for international transactions. It creates a pain point, as we will need to distinguish between domestic and foreign cards at checkout, which is long overdue. If this is done, we can adapt our POS systems to automatically detect card types, allowing us to handle surcharges without slowing down service.

Potential Inflationary Effects and Price Adjustments

Many businesses that currently apply surcharges are already considering price increases to compensate for the lost revenue. If you are among them, this approach makes sense to protect your margins, but it will contribute to slight inflationary pressures across the economy. If you are affected here, this will require careful handling to avoid alienating price-sensitive customers.

Turning Challenges into Opportunities with Practical Strategies

It's not all downside, as I stated yesterday, these changes will eliminate surcharge-related disputes, thereby fostering a better shopping experience. The reality is that customers hate surcharges.

With the timeline in 2026, you have time to prepare.

One idea worth considering is offering cash discounts after the ban is lifted. It remains an allowable option and can encourage customers to choose cash, thereby reducing your fee exposure. For example, one of my clients offers a free can of drink if the transaction is over $30 and is paid in cash. It worked well.

You need to consider how to adapt your payment strategy.

If you own or manage a retail business in Australia, it's time to consider the Reserve Bank of Australia's (RBA) proposed changes to card payments, which aim to eliminate surcharges on debit and credit cards. While the RBA surcharge ban offers some benefits, it also brings challenges for SMB retailers.

The Labor Party entered the last election committed to eliminating debit card surcharges, which were part of their election promises. Now the RBA has expanded this significantly, proposing a broader ban that includes both debit and credit cards. If it goes through, it will directly impact many SMB retailers as it means you will no longer be able to impose a surcharge to offset the costs of accepting credit, debit, or prepaid cards from major networks such as Mastercard, Visa, or EFTPOS. This forces you to absorb these expenses.

After yesterday's consultation, although we were hoping for something better, we concluded that it's not all negative, as the RBA is also requesting that interchange fees be lowered. For instance, debit card interchange fees are to be decreased from 10 cents to 6 cents per transaction, while credit card fees go to 0.3%. The plan also caps fees for foreign cards, but it's unclear how this works. For example, if a French bank charges 50 cents, what does the RBA propose? Reading the document, it's unclear how these lower fees are to be passed on to the SMB retailer. My immediate concern is whether the banks will be able to charge additional or higher administration fees to offset these reductions.

The RBA plan will require payment processors to disclose their fees in a clear and comparable manner, segmented by merchant size and card type. Although some saw this as a positive, I view it as insignificant, as reputable payment processors have been doing this for some time.

These changes are scheduled to commence on 1 July 2026. At least this gives us all a reasonable timeframe for adaptation.

Before I review some of the positives and negatives, let me note that today, the debit card is the dominant form of payment in retail, and it should, as such, be the default payment method for pricing.

Positives for SMB Businesses

The reforms could reduce card acceptance costs through new, lower caps on interchange fees. Since most SMBs already absorb these costs into pricing, they stand to save money. The RBA estimates that 90% of businesses that do not surcharge will benefit (our data shows 70% do not surcharge), meaning the majority could still gain.

Eliminating the surcharge will prevent many customer disputes, complaints, and confusion, and reduce friction with customers.

The push for greater fee transparency is another benefit, as it eliminates the need for you to request it directly. Potentially leading to cost savings.

It does not stop you from offering discounts for cash transactions. This approach rewards customers who opt for the lower-cost option of cash without violating the new surcharge ban.

Implementation costs, while present, are relatively modest. In our POS System and most others, it's just a minor change to the settings. The price of many goods in the shop will need to be changed to include the costs of the surcharges.

Challenges and Considerations, the negatives.

While the reforms offer substantial upsides, they also present problems for SMB businesses operating today with tight margins. Payment providers will still be charging fees, which SMBs must now absorb. For retailers in low-margin sectors, such as those with regulated or capped prices, like Lotto, I doubt they will see an increase in merchant margins to compensate for the loss of the surcharge. Lotto has made it quite clear that they do not like these surcharges.

Unfortunately, the plan favours larger retailers, who now have better rates, over smaller ones, and the RBA seems unconcerned with that.

The ban on surcharges encourages customers to use higher-cost cards. Many will switch from debit to credit cards. What happens if an American Express card is used?

Reliance on payment providers to pass through savings from lower interchange fees introduces uncertainty. I have spoken to them several times about this issue, and they claim that they are making little of it. If so, where do they make up the difference? Therefore, although the RBA anticipates that these reductions will benefit merchants, there is no guarantee that they will occur. Will there be higher administrative charges?

Additionally, merchants will lose some negotiating leverage with banks, as the current surcharges have been a concern for the banks.

The Outlook for SMB Retailers

With the current strong political backing, the RBA's plan is likely to proceed as outlined in their July 2025 consultation paper. SMB retailers should prepare now for the July 1, 2026, rollout.

So get ready to adapt? Once we are aware of the exact changes, we will provide a free guide to our users to help them make the necessary adjustments.

This information is based on the RBA's consultation papers from July 2025, which can be found here.

Written by:

Bernard Zimmermann is the founding director of POS Solutions, a leading point-of-sale system company with 45 years of industry experience, now retired and seeking new opportunities. He consults with various organisations, from small businesses to large retailers and government institutions. Bernard is passionate about helping companies optimise their operations through innovative POS technology and enabling seamless customer experiences through effective software solutions.