That extra 10c on your morning coffee. That $2 surcharge on your taxi ride. The sneaky 1.5% fee when you pay by card at your local restaurant. These could all soon be history.

The Reserve Bank of Australia (RBA) has proposed a sweeping reform: abolishing card payment surcharges. The central bank says it’s in the public interest to scrap the system and estimates consumers could collectively save $1.2 billion annually.

But like all major financial reforms, the devil is in the detail.

The 20-year experiment is over

Surcharging was introduced more than two decades ago to expose the true cost of different payment methods. In the early 2000s, card fees were high, cash was king, and surcharges helped nudge consumers toward lower-cost options.

But fast-forward to 2025, and the payments ecosystem has changed dramatically. Cash now accounts for just 13% of in-person transactions, and the shift to contactless payments, accelerated by the pandemic, has made cards the default for most Australians.

When there’s no real alternative, a surcharge becomes less a useful price signal and more a penalty for convenience.

After an eight month review, the bank’s Payments System Board has concluded the surcharge model no longer works in a predominantly cashless economy. The proposal now on the table is to phase out surcharges and instead push for simplified, all-inclusive pricing.

Who saves – and who pays?

At first glance, removing surcharges looks like a win for consumers. Every household could save about $60 per year, based on the RBA’s estimates. But payment costs don’t vanish – they shift.

This is where the Reserve Bank’s proposal is more sophisticated than it may appear. Alongside banning surcharges, it plans to lower interchange fees (the fees merchants pay to card networks like Visa and Mastercard) and introduce caps on international card transactions.

These changes aim to reduce the burden on merchants, which in turn limits the pressure to raise prices.

Could prices still rise?

Some worry that without surcharges, businesses will simply embed the costs into product prices. That’s possible. However, the bank estimates this would result in only a 0.1 percentage point increase in consumer prices overall.

There are three reasons for that:

1. most merchants already don’t surcharge, especially small businesses. Of them, 90% may have included card costs in their pricing

2. competition keeps pricing in check. Retailers in competitive markets can’t raise prices without risking customers

3. transparency is coming. The reforms will require payment providers to disclose fees more clearly, allowing merchants to compare and switch – fostering more competition and lower costs.

That said, the effects won’t be felt evenly. Merchants in sectors that do currently surcharge, like hospitality, transport, and tourism, will need to rethink their pricing strategies. Some may absorb costs; others may pass them on.

The winners

Consumers stand to benefit most. They’ll avoid surprise fees at checkout, won’t need to switch payment methods to dodge surcharges, and won’t have to report excessive fees to the Australian Consumer and Competition Commission. Combined with lower interchange fees, this means consumers should face less friction and more predictable pricing.

About 90% of small businesses don’t currently surcharge and would gain around $185 million in net benefits. These businesses often pay higher interchange fees, so the reform will reduce their costs. New transparency requirements will also make it easier to find better deals from payment service providers (PSPs).

Large businesses already receive lower domestic interchange rates, but they’ll benefit from new caps on foreign-issued card transactions, which is a win for those in e-commerce and tourism.

The losers

Banks that issue cards stand to lose about $900 million in interchange revenue under the preferred reform package. Some may respond by raising cardholder fees or cutting rewards, especially on premium credit cards. But they may also gain from increased credit card use as surcharges disappear.

The 10% of small and 12% of large merchants who currently surcharge will have to adjust. They may face retraining costs and need to revise their pricing strategies.
Most will be able to adapt, but the transition won’t be cost-free.

Payment service providers will face about $25 million in compliance costs to remove surcharges and provide clearer fee breakdowns. For some, this may involve significant system changes, though one-off in nature.

Will it work?

The Reserve Bank’s proposal tackles real problems: an outdated surcharge model, opaque pricing by payment service providers, and bundling of unrelated services into payment fees. Its success depends on how well these reforms are implemented and whether they deliver real price transparency and lower costs.

Removing visible price signals may create cross-subsidisation, where users of low-cost debit cards subsidise those who use high-cost rewards credit cards. Some economists argue this could reduce overall efficiency in the system.

International experience offers mixed lessons. While the European Union and United Kingdom banned most surcharges years ago, outcomes have varied depending on market conditions. Efficiency gains haven’t always followed, and small business concerns persist.

The road ahead

The Reserve Bank is seeking feedback until August 26, with a final decision due by year-end. If adopted, the reform will be phased in, allowing time for businesses to adapt.

For consumers, this may mark the end of hidden payment fees. But for the broader system, success will depend on more than just eliminating surcharges. It will require meaningful competition, transparency, and vigilance during the transition.

While not a major omission, mobile wallets (such as Apple Pay) and Buy Now, Pay Later (BNPL) services represent a missing component in the broader payments ecosystem that the current reforms do not yet address.

These platforms operate outside the traditional regulatory framework, often imposing higher merchant fees and lacking the transparency applied to card networks.

Their growing popularity, especially among younger consumers, means they increasingly shape payment behaviour and merchant cost structures. To build a truly future-ready and equitable payments system, these emerging models may need to be brought into the regulatory fold.