Surcharge Ban Puts Pay-by-Bank in the Spotlight

Contributed by David Martin, Senior Director – Enterprise, Zepto 

From 1 October, Australian businesses can no longer surcharge eftpos, Mastercard and Visa payments, under updated scheme rules following the Reserve Bank’s Review of Merchant Card Payment Costs and Surcharging. American Express, JCB and UnionPay have voluntarily adopted the same position.

These rules apply across the board in store, online and to cards held in mobile wallets, and present a pinch point for ecommerce brands. Because despite the surcharge going away, the merchant cost of accepting these payments is here to stay.

The 0.3 per cent interchange cap on domestic consumer credit transactions will provide some genuine relief, but interchange is just one cost input among several. There are scheme fees, acquirer margins, gateway costs, click fees, the card-not-present premium, chargebacks and refund processing sitting on top of it.

As a result, online retailers will be forced to absorb this cost or build it into advertised prices, and the RBA expects many will do the latter. But in a category where a competitor sits one tab away, that is a difficult lever to pull as consumers become increasingly price sensitive. If anything, the surcharge ban strengthens the merchant incentive to adopt lower-cost rails.

The post-surcharge merchant incentive

Pay-by-bank, also known as account-to-account (A2A) payments, operates on a different basis to traditional debit and credit cards and is quickly becoming a strategic battleground and a pathway to capturing share at checkout. Funds move directly between bank accounts over Australia’s real-time payments infrastructure, the New Payments Platform (NPP), avoiding card scheme fees.

Unlike traditional card payments, PayTo offers a highly secure, real-time digital debit alternative, integrated directly into the checkout. Since PayTo bypasses the card networks, it can deliver significantly lower transaction fees, immediate settlement for improved cash flow, and fast, cost-effective processing for customer refunds.

What’s more is its familiarity to consumers. We’ve gotten so used to paying with a ‘card on file’ because it’s convenient. That same convenience is mirrored in a PayTo agreement that is set up once with a merchant and then made available as an ‘account on file’ for future purchases. Consumers see the agreement in their own banking app, understand what they have authorised, and manage it from there.

It is through these benefits that A2A payments are shaping up to be a win-win for merchants and consumers, and are positioned to be the logical alternative choice for the future of merchant payments in Australia post-surcharge.

What Australia can learn from other markets

This transition to A2A payments is already well advanced internationally. Brazil’s Pix, India’s UPI, and the Netherlands’ iDEAL have all seen A2A become the primary payment method, driven by strong user experience, embedded incentives, and superior payments economics for merchants. iDEAL is the closest parallel for online retail here in Australia, carrying the majority of Dutch ecommerce checkouts because it was built directly into the buying experience.

In each market the shift was helped by regulatory settings that allowed lower-cost rails to compete on equal terms. Granted, India and Brazil’s less established card infrastructure made the jump to QR payments easier, but it took industry and regulatory coordination to build the rails. Australia’s policy settings are moving the same way, but more cross-industry coordination is needed.

Australia is well positioned to capture the same benefits for online retailers because the NPP is live and processing at scale, PayTo is available to merchants today, and the direction of policy is clear. But the question is whether policy translates into coherent execution across banks, payment providers, regulators and merchants.

If we get this right, competition will increase, lower-cost payment methods will grow on their merits, and both merchants and consumers will benefit from a system that is not only more efficient, but more transparent and dependable. Getting it wrong may mean that the system becomes simpler on the surface, but the underlying cost structure remains unchanged for merchants and consumers and payment flows continue to be shaped by a relatively concentrated set of players, limiting competitive pressure and slowing innovation.

We have an opportunity to improve payments for merchants and consumers alike, but merchant awareness and demand will be a key factor that determines how quickly better options scale.