Two weeks on, how are retailers absorbing card surcharges?

At Umina Beach Book Nook on the NSW Central Coast, the great Australian card-surcharge upheaval has so far produced a fairly straightforward result. “We’ve had questions about the surcharge. We have always absorbed the costs. So no price changes at the Book Nook,” owner Kate Toon wrote on social media. Since October 1, retailers can no longer add a separate fee when customers pay by card. However, the cost behind that surcharge has not disappeared.Every time a customer taps or inserts a card, the retailer typically pays a merchant fee to its bank or payment provider to process the transaction. Until the start of this month, some businesses passed that cost directly to customers through a card surcharge. The RBA’s ban removed that option, leaving retailers to absorb the fee themselves or recover it elsewhere through their pricing. “We have set a minimum transaction fee for cards of $5. Even that has annoyed some customers,” Toon told Inside FMCG. “It’s all just hard; margins are already so tight it’s just another nail in the small business coffin.”The fee with nowhere to goAcross NSW, retailers and hospitality operators are coming to different conclusions. Sydney cafe owner Philip Barbaro told the ABC his group pays about $150,000 a year in merchant fees and has increased prices on some menu items while leaving coffee untouched. “Now that is a big hit to my business,” he said.Jamaican Patty Bakehouse owner Chris Skuce has absorbed the charge for now, but expects prices to rise in the new year. “Another hit to the bottom line and completely unnecessary in my opinion.”Merchant charges aren’t uncommon when accepting payment, but smaller businesses lack the purchasing power of national chains when negotiating them. Retail consultant Trent Rigby says small businesses pay, on average, around three times what large businesses pay to accept cards. Larger retailers have generally incorporated these costs into prices for years. For smaller merchants, however, margins are far narrower, leaving them with a few options: Increase prices, absorb the expense, encourage cheaper payment methods or seek a better merchant-services deal. Small Business Association of Australia founder Anne Nalder argued the policy places a particular burden on family businesses. “Although merchant fees have been reduced, small businesses still incur those charges,” she said. “This leaves a difficult choice: small businesses absorb the cost of this ban and shrink their profit margins, or increase their prices.” Her question reflects what many operators now face: “Is the latter even possible in the current economic environment?”Retail’s new tricks“Most will pass this on by simply raising prices,” Rigby wrote, while referencing shrinkflation, cash discounts and businesses reconsidering which cards they accept. The ACCC permits discounts for customers using methods such as cash or PayID, provided the full price is clearly displayed, and the discount is disclosed before payment.Cash, unexpectedly, may gain from all this. Barbaro told the ABC he was considering a cash discount, invoking the old maxim that “cash is king”. Skuce doesn’t see that romance: “Most people want to pay by card. It is just a hassle to handle cash.”Yet RMIT University associate professor Marian Makkar explains the ban could alter how shoppers perceive spending during the crucial summer sales period. “With surcharges no longer visible on receipts and prices rising across retailers to absorb payment processing costs, consumers are reverting to cash as their preferred payment method, forcing a more deliberate and intentional spending mindset.” Heading into summer promotions, she said that shoppers counting physical notes may become more selective even as retailers entice them with discounts.Governor Michele Bullock said last month that the RBA hopes merchant costs will fall. Bullock said the bank had reduced interchange fees and was watching to ensure businesses received those savings. “Hopefully they’ll see their merchant service fees decline, and we’re going to be monitoring that very closely,” she said in a media conference. “So that will partly offset the effect on merchants.” The disappearance of a 1 or 1.5 per cent line on a receipt may feel like a minor victory for consumers. But for a retailer processing thousands of transactions, it is a recurring expense. Some, like Toon, will keep absorbing it, and others will spread it across a menu or a plethora of products, until nobody can point to the fee anymore. As Rigby warns: “The fee hasn’t gone anywhere.”