The Promise of Lower Fees: A Reality Check for SMEs
When the Reserve Bank of Australia (RBA) announced its ban on card surcharges, it understood the potential financial impact on businesses. To mitigate the blow, it simultaneously lowered the caps on interchange fees—the wholesale fees that flow from the merchant’s bank to the customer’s bank during a card transaction. For consumer credit cards, the cap was reduced from 0.8% to 0.3%. The RBA estimated this would deliver around A$660 million in lower payment costs for businesses.
The logic was straightforward: if the surcharge is banned, at least the underlying cost of card acceptance would be lower. But for many small and medium-sized enterprises (SMEs), the reality is proving to be more complex. The question remains: are these reforms actually reducing the cost of doing business?
The Bundled Rate Problem
One of the primary obstacles to realizing the savings is the pricing structure of payment service providers (PSPs). Most small businesses do not pay interchange fees directly. Instead, they are charged a bundled rate by their PSP—a single percentage that covers interchange, scheme fees, and the PSP’s own margin. There is no regulatory guarantee that the reduction in interchange caps will be passed on to the merchant in the form of a lower bundled rate.
As Professor Angel Zhong from RMIT University noted, “interchange is only one part of the cost. Small businesses typically pay their payment service provider a bundled rate, and there’s no guarantee that the interchange savings flow through to that rate”. This opacity in pricing makes it difficult for SMEs to verify whether they are actually receiving the intended benefit.
The Competitive Landscape: Some Positive Signs
There are, however, signs of positive change. In a competitive market, some banks and PSPs are lowering their rates to attract small business customers. Commonwealth Bank, for example, reduced its merchant pricing to 0.99%, while Westpac cut its fee to 0.79%. These reductions suggest that some of the interchange savings are being passed on, at least by the larger players.
The RBA has also introduced new transparency requirements, obliging card schemes and acquirers to publish more detailed data on interchange fees, acquirer service fees, and margins. This increased transparency should, over time, empower SMEs to make more informed choices and put pressure on PSPs to offer competitive rates.
The Bottom Line for SMEs
For an SME processing A$50,000 a month in card sales, a 1.5% acceptance cost amounts to A$9,000 a year. Even a small reduction in this rate can represent a meaningful saving. However, the savings from the interchange reduction must be weighed against the lost revenue from the surcharge ban. For a business that previously surcharged at 1.5%, the net impact on profitability may be neutral or even negative, especially if their PSP does not pass on the full savings.
The RBA’s reforms are a complex package of measures. The reduction in interchange caps is a genuine attempt to lower the cost of card acceptance for businesses. However, the extent to which these savings are realized by SMEs depends on the competitive dynamics of the payments market and the willingness of PSPs to share the benefits. For small business owners, the advice is clear: review your merchant statements, question your provider, and shop around for a better deal.
