Inflated surcharges

CHOICE finds credit card surcharges are money for jam for some retailers.
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01 .Introduction


The Reserve Bank of Australia (RBA) is finally having second thoughts about allowing retailers to surcharge as they see fit after a 2003 change in RBA regulations made the practice legal.

RBA reconsiders

In a statement released yesterday the RBA said “in recent years some surcharging practices, including surcharging well in excess of card acceptance costs, may have reduced the effectiveness of previous surcharging reforms”. The regulator had adopted a hands-off approach since the 2003 change and indicated it would allow market forces to regulate the practice, in effect meaning customers have the option of steering clear of surchargers.

That began to change late last year with the publication of a CHOICE investigation into surcharging. The Australian government said it would launch an inquiry into the practice – and whether surcharges are being adequately disclosed at point of sale – following the report.

CHOICE findings

Our report found that about 7% of merchants were surcharging in 2006 but that the rate had jumped to between 20% for smaller merchants and 40% for larger ones as of June last year. The report was commissioned by NSW Fair Trading and provided hard facts to back our stance that surcharging above the costs incurred by retailers for credit card transactions is underhanded and unfair.

As part of our research, about 88% of respondents to an online survey of 1435 consumers and a diary survey of 140 members told CHOICE they had paid credit card surcharges over the previous 12 months. Among the top offenders were airlines, telecom companies, holiday travel businesses, utilities, and taxis.

New regime

The RBA says “there may be a case for varying the Standards to allow schemes to place some limits on the level of surcharging”, adding it may “allow scheme rules to limit surcharges to an amount that is either reasonably related, or equal, to the merchant’s cost of card acceptance”. CHOICE believes the increasing number of consumers on the receiving end of surcharging will support that idea.



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CHOICE's findings on credit card surcharges have caught the attention of the Australian government, which has promised to investigate whether retailers are engaging in profiteering from additional surcharges. CHOICE believes some retailers have been adding excessive surcharges to credit card transactions. Beyond covering costs, some are using surcharges to generate an extra revenue stream.

A CHOICE survey has identified airlines, telcos, travel agents, restaurants, utilities, taxis (Cabcharge) and petrol stations as among the worst offenders. The top five companies that respondents recalled surcharging were Telstra, Aldi, Qantas, Virgin Airlines and Caltex.

Our findings

NSW Fair Trading recently approached CHOICE for a joint research project on credit card surcharges. We conducted two surveys: an online survey of 1435 consumers and a diary survey of 140 members who kept a record of their credit card activity, tracking the incidence of surcharges over a two-week period. We found:

  • about 88% of online respondents reported paying a credit card surcharge in the past year
  • more than 50% paid a surcharge between one and five times
  • 22% had paid surcharges more than 10 times in the previous 12 months.

Our survey also found that surcharges are usually applied as a percentage of the transaction amount – the highest are more than 10%. However, there are some cases of flat fees, such as those imposed by airlines – the highest we found was $25 per person per booking, charged by Qantas on international bookings. About 64% of respondents had seen surcharges applied by airlines. When booking online, these fees are hard to avoid.

Government response

Following our report, the Australian government says it will investigate excessive surcharging by retailers. The inquiry will also seek to determine whether surcharges are being adequately disclosed at point of sale.

Deputy Leader of the Australian Greens party, Christine Milne, put forward the motion in the senate in a bid to protect consumers from rip off credit card surcharges. “The Greens are very pleased to have secured the Government's agreement to investigate this issue as a first step towards stopping the profiteering,” said Senator Milne.

CHOICE welcomes this development designed to increase consumer protection.

What you can do to avoid a surcharge

Here are some tips for getting the best value:

  • Read our article Cheque, savings or credit, which spells out the different payment systems and how to use them to avoid surcharges
  • Use EFTPOS and other debit cards — There’s often no surcharge and fees for the merchant are lower than for credit cards.
  • Report non-disclosure — Businesses must ensure that consumers know a fee will apply, and the amount, before the transaction occurs. If this doesn’t happen, complain to the Australian Securities and Investment Commission (ASIC).
  • Compare surcharges — If you can’t avoid the surcharge, choose the card with the lower rate – many merchants charge different amounts for different credit cards.

For more information see the full report on credit card surcharging.

Become a surcharge sleuth

Become a surcharge sleuth by helping us uncover some of the shonkiest credit card surcharges. Leave a comment here, telling us where and when you were hit with the surcharge, how much you were charged and whether the surcharge was disclosed to you before the purchase. (It may help to have your receipt handy.)

03.What retailers pay vs what you pay

In 2003, new regulations from the Reserve Bank of Australia (RBA) enabled retailers to introduce surcharges for customers paying with credit and debit cards. This followed reforms to the payments system that disallowed the card schemes’ “no-surcharge rule” and caused a reduction behind the scenes in fees paid by merchants for credit card transactions. By 2006, just 7% of merchants were surcharging. But the rate has since increased dramatically, with the percentage of companies surcharging in June this year having risen to between 20% for small merchants and 40% for large merchants.

American Express (Amex) transactions generally attract the highest surcharges. The average surcharge for Amex and Diner’s Club transactions is 2.7%, compared with 1.7% for MasterCard and Visa. On average the surcharge you pay is about 0.8% higher than the average cost the retailers incur.

“For certain retailers and hotels, excessive surcharging is money for jam,” says Jeremy Griffith, Visa’s director of corporate relations in Australia, New Zealand and the South Pacific. “A 1.5% surcharge by a hotel, based on the RBA’s published average merchant rates, represents a 70% to 80% margin for the merchant.”

Are some retailers taking us for a ride?

In order to calculate the margins, however, you'd need to know the merchant service fee (MSF) a retailer pays to its bank for processing credit card transactions. The RBA publishes average MSFs. As at June 2010, they were:

  • 0.86%: MasterCard and Visa
  • 1.93%: American Express
  • 2.11% Diners Club

Large merchants pay significantly less than the average however. And even if an average-size retailer is not similarly blessed, odds are they are still charging far in excess of the percentages quoted by the RBA. Small merchants and those processing relatively low volumes of credit card transactions may pay far in excess of the average MSFs quoted above.

Merchants often impose the same surcharge for all payment cards, even though they have very different costs. For example, a restaurant might be charged a 2% MSF for Amex and 1% for Visa and MasterCard, but it decides to apply an average “blended” surcharge to consumers of 1.5%. Airlines also commonly blend their surcharges, with the high use of corporate and premium cards driving up the costs for everyone.


The Australian Competition and Consumer Commission (ACCC) states that when merchants charge their customers a credit card fee, they must ensure consumers know:

  • a credit card fee will apply; and
  • the amount of the fee before they enter into the transaction.

“The number one complaint we hear from consumers is that they didn’t know there was a surcharge until it was too late,” says Amex spokesperson Luisa Megale.

Inadequate disclosure

Some participants in our diary survey said disclosure was inadequate. Respondents reported that:

  • in more than 10% of 163 recorded surcharging instances, they did not recall being notified at all
  • of those who were notified, one in four felt the notification was not prominent enough
  • just under one in five of the respondents who had been notified felt the timing of notification was inadequate. Sometimes this was because disclosure was made after the transaction had gone through.

One participant only noticed that Origin Gas charges a 0.6% fee after she had paid – “there’s a small notation on the bill about the surcharge; the fee is added to the next bill”.

Similar problems can arise when disclosure is verbal rather than in writing. One diary respondent found that a 3.5% fee for Amex at a hardware store was disclosed verbally and only as the transaction was being processed.

Around the airlines

In 2009, CHOICE awarded Qantas a Shonky for its $7.70/$25 per booking per passenger credit card surcharges, paid on domestic and international flights respectively. Assuming Qantas pays far below the average merchant service fees of 0.9% (MasterCard and Visa) and 1.9% (Amex), it’s probably a nice little earner.

The surcharge on small-value bookings is exactly the same as for large-value bookings. And because all cardholders pay the same blended surcharge, those with standard Visa and MasterCard subsidise the cost of Amex cards and the benefits of those with loyalty programs. Qantas commented that it “ strongly rejects any suggestion that its card payment fees are somehow shonky or that Qantas is gaining a windfall from them.” The airline said all merchants were allowed to decide their own surcharges under the 2002 Reserve Bank changes. “We believe our approach is straightforward, transparent and ensures consumers are always aware of what the additional cost will be. Our fees are fully disclosed and customers can use alternative means of payment.” The spokesman conceded, “We do not claim our card payment fees directly reflect the specific amount that a financial institution charges in respect of any particular transaction.” 

Virgin Blue charges a flat $3.50 per passenger, per sector, for domestic travel, and $6 per passenger, per sector, for international; Tiger charges $7.20 per passenger and sector for domestic travel, while Jetstar charges $3.50 per domestic and $5 per international flight. Rex is the only airline surveyed that applies percentage fees, which vary depending on the card.

Both Virgin and Jetstar allow consumers to use a new internet payment system called POLi to avoid paying a surcharge. However, consumer awareness and use of the systems is very low and some survey respondents were critical.


Some CHOICE members have changed their payment behaviour where possible. When last asked to pay a credit card surcharge, more than one in three survey respondents chose another payment method or cancelled their purchase. Member comments in our article on Woolworths and debit cards provide some good tips. Many participants told us they would consider not returning to a business that imposes credit card surcharges. “I don’t pay them as a matter of principle – they (the company) lose my business,” said one survey participant.

We also asked respondents what they would be most likely to do if presented with a 2% surcharge in a shop or restaurant. Just over one in seven indicated they would pay the fee without question; others said they would “pay once but not return”; while about 60% stated they’d attempt to pay with a method that doesn’t attract a surcharge. About one in five said they would go to another merchant that didn’t apply the surcharge.


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