Guide to credit card surcharges

Everything you need to know about credit card surcharges and how you can avoid them.

Credit cards are convenient, but using them can often cost you more money than other payment options. As well as regular charges from interest rates and annual fees, you may also have to pay a surcharge when you use your credit card.

These surcharges are usually transaction-based and can make a big difference to the total transaction cost. Here, we look at when these fees are charged, how much you can expect to pay and how to avoid credit card surcharges so that you have a payment option that works for you in every situation.

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

Surcharges are fees that merchants apply to your transactions to help them cover the cost of accepting a specific payment method.

For example, a business that accepts credit cards will be charged a fee for processing these payments. Depending on the card and type of transaction, this fee can range from 0.5% to 3% or more of the total transaction cost and is usually paid by the business to its bank. 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 actually apply this fee to a range of different payment methods, including:

• American Express (credit card, debit 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. They also have to provide a fee-free alternative, such as cash or direct deposit.

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:

The 2013 surcharge reforms

The Reserve Bank of Australia (RBA) introduced a law stating that businesses could charge customers for the “reasonable cost” of accepting electronic payments. However, it did not have clear guidelines for other payment fees, and many companies continued to charge flat-rate “service fees” for bookings. For example, airlines charged between $7 and $30 per booking made with a credit card.

The 2016 surcharge reforms

In February 2016, the government passed a law banning excessive payment surcharges and providing the Australian Competition and Consumer Commission (ACCC) with new regulatory powers. In conjunction with this law, the RBA specified that reasonable costs could only be up to the value of any fees the merchant paid as a direct result of accepting a specific payment method.

The RBA also required that companies provide detailed statements of “acceptable costs” in percentage terms and gave the ACCC investigative powers. As a result of these changes, the RBA expects that merchants applying a surcharge will use a percentage rather than a fixed dollar amount. It says this should lead to more affordable surcharges, particularly for lower-value transactions. These reforms apply to large merchants from 1 September 2016, while smaller merchants have until September 2017 to make appropriate changes.

How much is a credit card surcharge?

The cost of a surcharge will vary depending on factors such as the business and the type of card. For credit card surcharges specifically, the cost is usually between 1% and 3%, but could be higher in some circumstances.

To give you an idea of surcharge costs – and the impact of the surcharge reforms – here’s what you could expect to pay for common transactions before and after 1 September 2016.

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 as of 1 September 2016, a percentage-based surcharge system has been 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

Virgin Australia

Tiger Air

Jetstar

Qantas

Air New Zealand

Singapore Airlines

Cathay Pacific

Emirates

Jetstar is offering the most competitive surcharge rates of the Australian airlines following the RBA reform, but there might be some instances where you could end off further out of pocket following the 1 September 2016. Using the example of Virgin's surcharges (which match Qantas'), if you were taking a business class return flight from Sydney to London (Heathrow), you'd have to pay up to the $70 cap rather than the $30 flat rate that was in place before. However, you'd see savings on most domestic flights. While you would have had to have paid $7.70 on a return economy flight from Sydney to Melbourne worth $245.00, though, you'll only have to pay a booking fee of around $3.19 from September onwards.

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

Paying for a taxi

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. As individual state authorities regulate taxi fares, they are not subject to the new reforms and taxis can still apply higher surcharge fees.

The good news is that authorities in Victoria, NSW, WA, SA and the ACT are all limiting taxi surcharges to no more than 5% of the fare price. Other states and territories are also considering similar action.

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.

Remember that any brick-and-mortar or online store that applies a credit card surcharge should clearly notify you before you make a payment. For example, if you’re shopping in-store, there should be signs at or near the checkout notifying you of any surcharges. Online, there is usually a similar notification of a surcharge for specific payment options. Remember, merchants also have to provide you with fee-free ways to pay, such as cash or direct deposit.

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. Note that 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 new surcharge laws, debit card payments will typically attract a lower fee than credit cards. For example, from 1 September 2016, Qantas will only charge 0.6% for bookings made with a debit card, compared to 1.3% for credit cards. In this case, you can halve the cost of a surcharge by choosing debit over credit.
• Consider going to 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 payment 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, ideally 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 a range of factors including 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 at least reduce the cost of credit card surcharges, to make paying with plastic more affordable.

Images: Airline companies and Shutterstock