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By the time small businesses start quoting American policy as the sensible alternative, you know something has gone awry in Canberra. Yet here we are, watching Australian SMEs warn the Reserve Bank that its proposed blanket ban on debit and credit card surcharges could do more harm than good, potentially pushing up prices for everyone.

The timing is awkward. While the RBA sketches out a one-size-fits-all ban, the United States, hardly a bastion of small-business indulgence, has struck a settlement that does almost the opposite. After twenty years of litigation, Visa and Mastercard have agreed to give American merchants greater freedom to impose surcharges on premium and rewards cards. It is a pragmatic arrangement: if a card costs more to accept, its user can be asked to pay for that privilege.

Australian SMEs look at that and wonder why their own regulator is taking a very different path, with what many have politely labelled a “sledgehammer”. Less politely, several have said privately that the proposal looks like reform for reform’s sake, detached from the realities of running a café, a pub, or a travel agency on tight margins.

A global shift towards nuance – except, it seems, in Australia

The criticism is not coming from fringe players. Industry groups representing tourism, hospitality, retail and travel have been lining up to explain again and again that card fees are not a theoretical abstraction. They are real costs that land on real businesses every day.

The contrast with the US settlement is particularly galling. America, long considered a more restrictive environment for surcharging, has just granted merchants precisely the flexibility Australian SMEs fear losing. New Zealand has taken a similarly measured path, allowing targeted surcharges while shielding customers from bill shock on small in-store purchases.

In Australia, however, nuance appears to have slipped through the cracks.

Many SMEs argue that if the RBA insists on intervention, the logical step would be a limited ban on surcharging low-cost debit cards — the very model promised by Anthony Albanese and Jim Chalmers before the last election. That approach would still allow businesses to pass on the high costs of premium credit cards without leaving customers confused at the counter.

The “waterbed effect”: Europe’s warning and Australia’s fear

The European Union offers a cautionary tale. When Europe banned surcharges outright, costs did not miraculously vanish. They reappeared somewhere else — usually in the headline price. As the European Court of Auditors bluntly concluded, the ban amounted to “a transfer of costs from a visible surcharge to an invisible price increase rather than a true reduction in the consumer’s financial burden.”

Australian SMEs are adamant that the same thing will occur here, only faster.

The Australian Travel Industry Association stated the impact plainly:
“A complete surcharge ban would likely result in a shift of these costs to higher base prices or increased service fees, amounting to an across-the-board cost of living increase with all customers paying more regardless of how they choose to pay.”

The Australian Hotels Association followed in kind:
“Nothing comes for free – but under the current RBA proposal, credit card users will be getting something for nothing – and cash users and debit card users will be paying for it.”

Put bluntly: someone always pays. The RBA’s proposal merely changes who.

Competition, not concealment: what SMEs say they actually need

Canada’s model is often raised as a better example, not because it makes life easier for businesses, but because it maintains clear price signals. Surcharges must be capped and disclosed to ensure customers understand the cost of their payment choices and encourage competition among payment networks. That transparency helps keep pressure on fees and encourages adoption of cheaper options such as Least-Cost Routing.

Australian SMEs want the same. Several industry groups are openly calling for Dynamic Least-Cost Routing to be mandated by default, arguing it would tackle inflated card fees far more effectively than a blanket ban.

As one hospitality operator noted in their submission, “If you take away the only tool we have to reflect the true cost of certain payment methods, don’t be surprised when prices rise.”

A billion-dollar hole if the RBA gets it wrong

The AHA has put a number on it.
“In net terms, those businesses currently surcharging will be out of pocket by more than $1 billion,” its submission warns.

For all the talk of cost-of-living pressures, that money will not simply evaporate. It will find its way into menu prices, accommodation rates, service fees, the quiet inflation that policymakers fret about in speeches, while inadvertently fuelling it through policy missteps.

The RBA now faces an uncomfortable question: does it double down on a blanket ban that few global jurisdictions support, or does it follow the US, New Zealand and Canada in taking a more precise, less disruptive path?

Australian SMEs are hoping the central bank is still listening. If not, customers may soon wonder why the price of everything from a motel room to a morning flat white has edged up and why the regulator never saw it coming.