We talk a lot about the influence of Coles and Woolies, Qantas and Virgin… But there’s another pair of companies that you could argue have an even more powerful presence in our lives: Visa and Mastercard.

They’re the ultimate source of those card surcharges nobody likes. There’s truly nothing more humbling than your card declining because you weren’t expecting to pay a 50-cent fee on top of your $5 coffee… anyone else?

This week, the Government announced plans to axe debit card surcharges by 2026. It will also fund an investigation into ways to lower payment fees for consumers.

So where do surcharges actually come from? Will this make a real difference to the cost of living? And who will be left to absorb the charges from payment facilitators like Visa and Mastercard?

Tapping a debit card is a fast, and fuss-free payment method. According to the RBA, around 76% of payments made by Australians in 2022 were on card.

As we continue becoming less reliant on cash, card surcharges are a now- unavoidable part of everyday life. A card surcharge is an amount or percentage a business adds to the price of a product or service. These fees are meant to cover the cost of processing payments, that are passed on to businesses by banks and card networks (Mastercard, Visa etc). For example, that random 50 cents that gets added to the price of your coffee.

To be clear, Mastercard and Visa don’t set the amount you get charged. That’s at the discretion of the individual business.

The way you pay for something and who you bank with can impact how much you’re charged. EFTPOS transactions (inserting the card) carry the lowest surcharge, at about 0.3%. To put that into perspective, that’s a 30-cent fee on a $100 purchase,

Next comes tapping your card (including services like Apple Pay on your iPhone). This is the default payment method for most of us. Tapping routes a payment through the card network, resulting in a higher fee of around 0.5%.

Cards that provide rewards to consumers, like credit cards, are typically the most expensive for businesses to process. Ever seen ‘No Amex’ on the reader? That’s because it can cost the business up to $1.50 per $100.

The RBA sets rules about surcharging, and the Australian Competition and Consumer Commission (ACCC) enforces these rules. Businesses are allowed to surcharge, but a fee shouldn’t be higher than what it costs them to use that payment type.

Generally speaking, smaller businesses pass the surcharge on to customers and larger businesses (think supermarkets, department stores, major retailers) absorb these costs. Whilst it’s only five or ten cents here or there, it adds up to Australian businesses paying about $2 billion a year in processing fees. That’s the love triangle between the payment processor, the business, and you, the unsuspecting consumer, chasing your 3pm sweet treat.

This week, the Federal Government proposed to ban debit card surcharges entirely from 1 January 2026, subject to a review currently underway by the RBAThey’ve also committed $2.1 million to the Australian Competition and Consumer Commission (ACCC), the consumer watchdog, to investigate illegal and unfair surcharging practices.

I do want to make one key distinction about the difference between credit card fees and debit card fees. A credit card is spending borrowed money, whilst a debit card is spending money that is yours. Debit cards act as the gateway to your bank account. This distinction is important when discussing what the Government has tabled.

Treasurer Jim Chalmers said: “Consumers shouldn’t be punished for using cards or digital payments, and at the same time, small businesses shouldn’t have to pay hefty fees just to get paid themselves.”

This is really important, because it is small businesses that bear the brunt of rising costs.

The Reserve Bank published an issues paper on Tuesday, examining the framework for surcharging. It found there is a wide discrepancy between large and small merchants in Australia. The average per-transaction fee (‘cost of acceptance’ for card payments) paid by small businesses is around three times what large retailers pay. Again, take a David Jones, or a Woolies. This is largely because larger businesses are able to negotiate better wholesale fees.

The RBA flagged in the paper “regulatory settings could be adjusted to put further downward pressure ” on the fees set by VISA and Mastercard.

The global payment processing industry is led by two key players: Visa and Mastercard. Together, they represent around 90% of payment processing outside of China, according to the U.S. Consumer Financial Protection Bureau (CFPB).

In the U.S., more than 60% of debit transactions run on Visa’s debit network, enabling the company to earn around $US7 billion ($AU10.5 billion) annually in fees from these transactions.

We have these stats because last month, the U.S. Justice Department (DoJ)launched legal action against Visa, alleging it illegally maintains a monopoly over debit network markets. The DoJ alleges Visa is doing this by using its dominance to push down existing competitors and prevent new players from developing alternatives.

Attorney General Merrick Garland said: “Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service. As a result, Visa’s unlawful conduct affects not just the price of one thing – but the price of nearly everything.”

Richard Wormald, Mastercard’s local president, told The Australian Financial Review that the RBA has overlooked the value of services provided by card companies. He argued, “There is no such thing as a free lunch.” He went on to argue the protections offered to merchants and customers, such as refunds for undelivered goods and fraud prevention, come at a cost.

On the other side of the coin… or card. Visa’s country manager, Alan Machet, also warned that further crackdown could hinder their ability to deliver these essential protections and benefits. Machet told AFR, “Just because the flow of digital payments is invisible does not mean it is free to operate, innovate or future-proof.”

As the Government cracks on with plans to crack down on debit card surcharges by 2026, the implications for both consumers and small businesses are yet to be fully understood.

Meanwhile, the Opposition argues a surcharge ban “won’t make a difference”. It calls the Government’s plan a “desperate attempt” to conceal “failed” cost of living measures.

Shadow Treasurer Angus Taylor said the overhaul is a “band-aid solution” that lacks necessary detail. “This ‘announcement’ is completely void of detail and doesn’t offer any tangible solutions to the cost of living crisis in the here and now”, Taylor said.

So, it’s a watch-and-wait with this one. What remains true is that the small pennies are adding up for someone, somewhere. Those pennies can quickly turn into hundreds of dollars, and in a cost-of-living crisis, that matters.

What do you think? Are you going to start putting down cash to avoid the card fees altogether, or is this just the cost of convenience in a digital world?

Rips open velcro wallet.

Looking for a better way to manage your money?

Up is here to help. No extra fees, no overseas charges, and no lending to fossil fuel projects. It’s banking made easy for young Australians.

With Up, you get no ATM, conversion, or markup fees when you travel, and everything can be done from your phone in minutes. It’s designed to give you more control and help you get better at managing your money.

Sign up today with the code TDA20 and get $20 in your account.

Life’s better on the upside.

In this week's wrap of good news, we discuss a major development in cervical cancer treatment, how a crayon drawing turned into a council development, and why Tree Kangaroos are being given bunches of flowers.

To get this good news weekly, you can sign up to our Good Newsletter here.