3 Things the United States Can Learn from Australia’s Surcharging Laws

Posted on May 24, 2019 at 21:59 PM

Credit card surcharging by merchants is still a relatively new concept in the United States. However, in Australia, businesses have been surcharging on both credit cards and debit cards for years.  Looking into Australia’s surcharging history and the impact on consumer spending habits can shed light on what merchants can expect as surcharging gains traction in the U.S.

1. Merchants don’t lose customers when they surcharge

Even as laws make it possible for U.S. merchants to surcharge, many are hesitant to do so because they think it might cost them customers. Australia shows that isn’t true.[iii]

While consumers may say they oppose surcharging, studies have shown it has no discernible effect on their actual shopping habits. There is no concrete evidence that a customer will not purchase something from a merchant just because of surcharging.

In an independent scientific study commissioned by SurchX, 80% of consumers said they wouldn’t abandon a purchase to get a product 5% cheaper elsewhere.

2. High-risk and online merchants benefit the most

Merchants like airlines, hotels, and ticket vendors are often charged higher credit card processing rates due to the increased risk of chargebacks. [iv] Online merchants also generally pay higher processing fees than their brick-and-mortar counterparts.

Surcharging is now very common at most hotels and airlines in Australia. [v] It’s so common that Australian consumers don’t even bat an eye. Australian consumers are also nearly 400% more likely to see a surcharging fee at an online store. [vi] The lesson? Surcharging is going to grow in the United States for all merchants, but it is going to be especially important for online merchants and early adoption in the travel industry.

3. Staying compliant can be challenging

During a one-month tracking period in 2018, the Australian Competition and Consumer Commission sent out over 750 warning letters to merchants about surcharging compliance. They received an additional 2,500 consumer complaints about illegal surcharging practices.[ii] While this may seem like a large number, given the number of businesses applying surcharges it’s actually very small.

The warnings were not a case of greedy businesses trying to take advantage of customers. The challenge in Australia, and in the US, are the many complicated laws and regulations around surcharging that make it nearly impossible for merchants to stay compliant on their own. The ACCC said that most of the compliance issues were just a result of merchants being unaware of the rules.

Like Australia, the United States is layered with credit card issuer surcharging rules as well as laws at both federal and state levels. In addition, there are literally thousands of credit cards offered to U.S. consumers from financial institutions, each with its own surcharge rates and regulations.

Surcharging predicted to become common practice in the USA

With all the local, state, and federal rules, along with misconceptions being tossed around, surcharging can be both confusing and intimidating for merchants in the United States. But Australia has shown us it shouldn’t be. More and more data is rolling in proving consumers won’t abandon merchants who surcharge. Soon surcharging will not only become accepted but normal to the public.

 

References

[i] https://www.rba.gov.au/publications/consultations/201106-review-card-surcharging/pdf/201106-review-card-surcharging.pdf
[ii] https://www.rba.gov.au/publications/bulletin/2018/dec/payment-surcharges-economics-regulation-and-enforcement.html
[iii] https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-7-how-australians-pay-new-survey-evidence.pdf
[iv] https://chargebacks911.com/knowledge-base/factors-that-determine-your-business-is-high-risk/
[v] https://www.virginaustralia.com/us/en/plan/fees-surcharges/holidays/
[vi] https://www.abc.net.au/news/2018-12-26/australians-lose-more-than-200-million-a-year-paying-with-card/10666008

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