What is a credit card surcharge and how you can avoid it?

Your favourite café isn't making a profit by charging a surcharge on credit card payments. Instead, it's only passing on the fee they get charged by major credit card networks for processing the payments.

Typically, each time you swipe your card at a café or any physical or online store, the merchant is required to pay a small fee for offering this convenience to you. They may then choose to add a surcharge that passes on this cost to you, rather than letting it eat into their margins or profits.

However, credit card surcharge fees are charged at each merchant’s discretion. That's why you pay what you see with some retailers, while others ask you to pay extra when you use a card. In some cases, a merchant may choose to manage the cost of payment processing fees in other ways, such as raising prices across the board, or refusing certain payment methods – for example, some stores don’t accept American Express cards due to the higher cost of processing these payments.

According to the Australian Competition and Consumer Commission (ACCC), while it’s legal to charge a credit card surcharge, the surcharge must not exceed what it costs the business to process the payment.

Businesses are not required to charge customers a credit card surcharge, but if they do, they must ensure the surcharge amount isn't excessive. While it’s reasonable for a merchant to surcharge you for the actual cost they’ll pay for processing the transaction, this amount shouldn't include the cost of infrastructure or facilities the merchant purchases to enable credit card payments.

These rules are applicable for the following payment types:

• Eftpos (debit and prepaid)
• MasterCard (credit, debit and prepaid)
• Visa (credit, debit and prepaid)
• American Express "companion cards" (American Express cards issued through an Australian financial service provider and not directly through American Express)

The amount you end up paying as a surcharge will depend on the card you use, where you're shopping and what you're buying, though a common fee is between 1% and 3% of your purchase.  

Some retail and online outlets might also charge a flat or fixed fee on credit card transactions. They still need to ensure this amount is less than the costs they incur when accepting or processing the transaction. If you think a retailer has charged you an excessive surcharge, you may consider filing a complaint with the ACCC.

Remember that all retailers must inform you of the surcharge before you pay. This is true whether you're shopping online or in a brick-and-mortar store, no matter how much you spend. You’ll typically see a small sign near the payment processing machine in-store and listed at checkout if shopping online. If you're not informed in advance, you can report the merchant to the Australian Securities and Investment Commission (ASIC).

Paying a surcharge on credit card transactions can feel like an unnecessary cost. Still, it's often a small price to pay for the convenience of the swipe and tap payments that we've become so used to. However, it's possible to avoid paying credit card surcharges in some situations. Here are some tips that might help you:

• Consider using cash for your purchases - and if you withdraw cash from an ATM, look for one that does not charge you a fee to do so.
• If you have a debit card that can be used as either a credit or debit card, select "savings" instead of "credit" when paying. This will mean the payment is processed through the EFTPOS system rather than the credit provider’s system, and you may avoid having to pay a surcharge.
• Sometimes it helps to shop around, as you might find a merchant that charges a lower or no credit card surcharge.
• Linking your card to PayPal and using your PayPal account to make payments might help you avoid a credit card surcharge if the merchant doesn't charge a fee when you use PayPal.

Above all, it helps to be an aware shopper. You could make it a habit to check for credit card surcharges before making a purchase and review your options accordingly. And to keep a bit more money available in your budget, it might also be worth comparing credit cards and choosing one that charges lower fees.