Pubs and cafes fear squeeze of RBA card surcharge ban
Small businesses across hospitality, retail and fuel outlets have urged the Reserve Bank of Australia (RBA) to reconsider its proposed ban on card surcharges, warning it could squeeze already thin margins.
They argue the fees paid to banks will remain unchanged, leaving little choice but to raise prices or absorb costs.
The concerns follow threats from major banks to raise credit card fees, restrict interest-free periods, and limit customer benefits. Industry groups say the RBA’s proposals fail to adequately address the burden of merchant fees, and risk handing banks and payment providers greater profits at the expense of small operators and consumers.
“If the RBA bends to the banks and limits surcharging without fixing merchant fees, it will be the biggest own goal in the history of the payments industry,” Wes Lambert, chief executive of the Australian Restaurant & Cafe Association (ARCA), told the Australian Financial Review (AFR).
Hospitality groups, convenience store operators and pubs told the RBA that merchants face being locked into high fees they can no longer recover through surcharges. Small businesses are concerned that any reduction in wholesale card costs will not be passed on by banks or global payment companies.
Submissions pointed to least-cost routing (LCR), intended to steer payments through cheaper networks such as eftpos. Instead, providers have promoted blended pricing models where merchants pay a fixed rate, typically around 1.6% of sales, regardless of card type. While simple, this often leaves businesses paying significantly above the underlying transaction cost.
Lambert warned that small businesses would face higher costs “with no way to recover them”, undermining already narrow margins. Cafes, which operate on average profits of just 3.3%, risk seeing their returns slashed by up to 42% on each coffee sold, according to data provided to the RBA.
The Albanese government has previously labelled lowering payment costs a “national priority” and threatened direct intervention if the market did not respond. The Australian Association of Convenience Stores, representing 7,000 outlets, argued that the time for intervention “is now”.
It said merchants are often pushed into blended rates that mask true costs, with routing decisions left in the hands of banks and processors rather than businesses.
While the RBA has reported that 80% of merchants had least-cost routing enabled for in-person transactions as of June, industry leaders say benefits are not flowing to shopfront operators.
Stephen Ferguson, chief executive of the Australian Hotels Association, said:
“While payment service providers may have enabled least-cost routing, the merchants and their customers are not the ones receiving the benefit … providers are pocketing the margin.”
The RBA has argued that banks would need major investment to support dynamic least-cost routing (DLCR), which allows merchants to select the cheapest processing option for each transaction in real time. Critics say resistance is profit-driven.
The Australian Hotels Association noted that “a cynic would suggest that, of course, the invisible middlemen would say that. Dynamic least-cost routing would erode their margins.”
Payments companies including Dutch firm Adyen and local start-up IPSI counter that the technology already exists and can deliver savings of between 45% and 70% compared with current blended rates.
Industry groups believe DLCR could be a key step in creating transparent, competitive payment systems that genuinely reduce costs for small businesses.
Lambert added: “For the RBA to prioritise bank profits over fair, transparent payment costs would be an insult to every cafe owner serving your morning coffee and every restaurant putting food on your table.”
Jonathan Jackson, 11th September 2025
