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Everything you need to know about changes to payment surcharging

American Express /

Excessive surcharge legislation has now been extended to small businesses, with the changes coming into effect on 1 September.  However, plenty of small businesses still don’t understand what their obligations are and they could face sizeable penalties if they fail to comply.

The Reserve Bank has laid down the law: small businesses are now only able to apply a surcharge on credit card payments that cover their costs for the transaction. Nothing more.

The good news is that reducing surcharge fees has been shown to deliver benefits to SMEs by generating more repeat business, greater customer loyalty and an increase in spending, according to recent research conducted by the Retail Doctor Group on behalf of American Express.

How the new surcharge regulations work for merchants

Although large businesses have been abiding by surcharge regulations for a year, it’s now time for small businesses to become compliant.

Find out how American Express is helping small businesses navigate the change.

If merchants choose to surcharge, the RBA wants them to explain the additional charges  as a percentage, rather than in a dollar amount, and accurately reflect the cost of the transaction in the fee they pass on to their customers. So it’s easy for merchants, payments facilitators are required to send an annual statement that lists the average cost of acceptance for each card system.

In short: merchants won’t be able to estimate how much these transactions cost. The statement from payment acquirers will be used as evidence, which will place a downward pressure on costs and provide greater transparency for consumers.

And if the Australian Competition and Consumer Commission suspects that businesses have been overcharging, they now have powers to go after them and impose hefty fines.

Time to rethink surcharging

As small businesses begin to implement these changes, some may be concerned by the impact of reducing their surcharge fee or simply going surcharge free.

But in reality, the outlook is positive.

To start with, the cost of acceptance is coming down significantly. American Express has lowered its merchant service fees for the majority of its small businesses, to less than 2%. Other payment providers have also been required by law this year to reduce their charges.

And new research indicates that the removal of surcharging ultimately leads to a more positive purchasing experience – with a bottom line benefit for business and shoppers.  According to the Amex Payment Surcharges Report, 70% of consumers said they would tell friends to avoid a business if it uses a surcharge.

“The surcharge is a barrier that gets in the way of the relationship between the customer and the merchant,” says Surcharge Free spokesperson Christopher Zinn.

Consumers agreed the use of surcharges was deceptive, not transparent, unfair and annoying. But the real impact comes through in behaviour – more than a third of respondents said not being charged was “extremely important” for their patronage.  In fact 90% of consumers said a business being surcharge free was important for their repeat custom.

Brian Walker, Founder of Retail Doctor Group says merchants should consider dropping surcharges altogether, and with the rate cuts, now is a good time for businesses to rethink their surcharge policy.  “Removing surcharging ultimately leads to a more positive purchasing experience – it’s a bottom-line benefit to businesses and consumers.”

There’s no doubt that small businesses need to sit up and take note of this new legislation. But if changes to surcharges are implemented in the right way, millions of shopkeepers stand to benefit, rather than lose out.

American Express

American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success.  Learn more at www.americanexpress.com.au.