Guide to credit card surcharges

When you pay with your credit card, some businesses will apply a surcharge to cover the cost for processing the payment. These surcharges are usually between 1% and 2% of the transaction amount. In 2016, an excessive surcharge ban was placed on all businesses to ensure that customers weren't paying more than what it cost to process the payment. You can use this guide to learn when these fees are charged, how much you can expect to pay and how to avoid credit card surcharges.

What is a credit card surcharge and when is it applied?

Surcharges are fees that merchants apply to your transactions, on top of the advertised purchase price, to help them cover the cost of accepting credit cards as a payment method.

For example, a cafe that accepts credit cards will be charged a fee by its bank for processing the payment of your latte. Depending on the card, this fee can range from 0.5% to 2% of the total transaction cost. Businesses can choose to offset the cost of this fee through their pricing, or by applying a surcharge.

Payments that attract a surcharge

While credit cards often attract a surcharge, businesses can choose to apply this fee to a range of different payment methods including:

• American Express (credit card and prepaid)
• Mastercard (credit card, debit card and prepaid)
• Visa (credit card, debit card and prepaid)
• Eftpos (debit and prepaid)

Some businesses also apply a fee for other payment options, such as BPAY or PayPal. For example, Virgin Australia applies a surcharge for any airfare you buy with a credit card, debit card or PayPal.

It’s important to note that any business that includes a surcharge must let customers know before they pay. If the only payment option available requires a surcharge, the surcharge should be included as part of the original quoted price rather than added afterwards.

Credit card surcharge reforms

The Australian government regulates most surcharges, including those for Visa, Mastercard and American Express companion cards. Over the past few years, the government has introduced a number of surcharge regulations to limit how much these fees can be. There have been two key surcharge reforms between 2013 and 2016.

How much is a credit card surcharge?

The cost of a surcharge will vary depending on the business and the type of card that you're using but Visa and Mastercard credit cards may attract surcharges of 1% to 1.5% and American Express credit cards may incur surcharges of 1.5% and 2%.

To give you an idea of surcharge costs and the impact of the surcharge reforms, you can compare the surcharges that applied before and after 1 September 2016 below.

Booking flights

Prior to the RBA flat-rate surcharge ban, airlines were renowned for charging exorbitant credit card booking fees. There was previously a flat rate per flight and per person, but on 1 September 2016, a percentage-based surcharge system was introduced across the four major Australian airlines.

You can compare the old and new credit card booking fees charged by Qantas, Virgin, Jetstar and Tiger Air below.

Credit card surcharges before 1 September 2016

_{*The booking and service is fee is charged per person, per flight booked.}

Credit card surcharges after 1 September 2016

Qantas

For tips on avoiding surcharges altogether, see our guide on how to avoid booking fees when organising your next flight.

Virgin Australia

Jetstar Airways

Tiger Air

Paying for a taxi

The excessive surcharge ban doesn't apply to taxi services, as the industry is regulated by state and territory regulators. The surcharge applied when you use your credit card to pay for a taxi varies from state to state and can be as much as 10% of your fare price.

The good news is that authorities in Victoria, NSW, WA, SA and the ACT have limited taxi surcharges to no more than 5% of the fare price.

Credit card surcharges for in-store or online purchase

As of 1 September 2016, the surcharges you’ll pay for credit card purchases in-store or online will be limited to the cost of accepting each payment method. In general, this will be between 1% and 3% of the total transaction cost.

Brick-and-mortar or online store that apply a credit card surcharge should clearly notify you before you make payment. For example, there should be signs at the checkout in-store or information on the website to notify you of any surcharges before you pay.

Other places you may have to pay surcharges

• Ticket machines. You could have to pay a surcharge when you use your card to pay for parking at a ticket machine.
• Events. Paying for event or concert tickets might require that you pay a surcharge. It’s important to note that surcharge regulations do not affect the “booking fees” that are applied regardless of the payment method used. The ACCC says there are no regulations to stop merchants from applying these fees, but they still need to be included in the advertised total price before a purchase is made in order to comply with Australian Consumer Law.
• Utilities. Payments towards utilities and other bills can also attract surcharges.
• Government payments. Payments to government bodies may also attract a credit card surcharge. For example, the Australian Taxation Office (ATO) applies a card fee based on the amount you pay and now says the fee will be based on the amount paid and the card used, and is “equal to the fee we incur from our banker”.

How to avoid surcharges

While there are some instances where you have no option in paying a credit card surcharge, here are some ways you can avoid or reduce how much you pay in surcharges over time.

• POLi. POLi, a wholly-owned subsidiary of Australia Post, is one of the country’s leading real-time, online payment methods. With Internet banking enabled on your credit card, you can choose to pay through POLi for airline tickets and more, and you don’t have to pay any surcharge when you use this payment method. POLi transactions from a credit card could also be considered “cash advance transactions” and may attract additional fees as a result. Check to make sure your card provider allows this payment option from a credit account.
• Use a debit card. Under the latest surcharge laws, debit card payments will typically attract a lower fee than credit cards.
• Consider other businesses. In some cases, you may be able to shop around to find a merchant that charges reduced or no credit card fees. For example, some taxi companies charge as much as 10% for credit card payments, while Uber doesn’t apply any credit card surcharge and even allows you to link your card through the app for faster payment.
• Link your card to PayPal. You can link your credit card account to PayPal and then use your PayPal account to make payments if the merchant provides this option as a fee-free alternative.
• Booking flights with points. When booking flights with Virgin Australia and Tiger Air, you can avoid surcharge fees by booking your flight with Velocity Points rather than cash.
• Vouchers. Some airlines and institutions don't charge fees when you use a voucher to make the purchase or booking.

Frequently asked questions

• If I use my credit card to make a hotel reservation, but end up paying with cash, would I still have to pay a surcharge?

  f you’re paying using cash, the hotel should not apply a surcharge, but it is worth checking directly with the hotel.

• Do I have to pay interest on surcharges?

  The money you pay for a credit card surcharge falls under purchases, so you could have to pay interest on it if you carry a balance.

• What can I do if I think I’ve been surcharged too much?

  If you think you’ve paid an excessive surcharge, or if you don’t feel you were notified of the surcharge before you made a payment, contact the ACCC on 1300 302 502.

The cost of a surcharge depends on the business, the cost of the transaction and the type of card you use. By taking note of when surcharges are applied, using alternative payment options or shopping around for a more affordable product or service, you can avoid paying or reduce the cost of credit card surcharges.

Images: Airline companies and Getty