Consumers who use their credit card for purchases are being charged higher fees than those who prefer debit cards.
The Reserve Bank of Australia has revealed the merchant fees the major credit card companies charge retailers, which are then passed on to customers.
With inflation running at the highest level in 32 years, the RBA has offered some helpful tips, noting smaller shops were often charged higher fees than bigger retailers.
'Most notably, smaller businesses tend to face significantly higher average merchant fees than larger businesses,' it said.
Consumers who use their credit card for purchases are being charged higher fees than those who prefer direct debit (pictured is a stock image)
A paper by economists Troy Gill, Cara Holland and Georgia Wiley revealed Diners Club had the highest average transaction fees of 1.7 per cent.
Credit card company merchant fees
DINERS CLUB: 1.7 per cent
AMERICAN EXPRESS: 1.3 per cent
MASTERCARD/VISA: 0.9 per cent
DEBIT CARDS: 0.3 per cent
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American Express was also expensive, with typical fees of 1.3 per cent.
The more mainstream credit card brands Mastercard and Visa had average merchant fees of 0.9 per cent.
Those wanting to save money were advised to use their debit card, with the RBA noting EFTPOS - or electronic funds transfer at point of sale - had much lower average transaction fees of 0.3 per cent.
'Across all merchants, debit cards remain significantly cheaper for businesses to accept than credit cards,' the Reserve Bank paper said.
'Payments made through the domestic debit card network, EFTPOS, are generally the least expensive, costing merchants an average of 0.3 per cent of the transaction value; this cost has been broadly unchanged over the past decade.'
Tap and go payments come with the same fees as inserting a card into an EFTPOS machine.
Inflation in the year to June soared by 6.1 per cent but the Reserve Bank is forecasting it will hit 7.75 per cent by the end of 2022, making cost of living a key issue.
Since the start of the pandemic, tap and go credit card transactions have been replacing banknote payments.
'Cards are the most frequently used payment method in Australia,' the RBA said.
'Over the past few decades, card payments have grown strongly, driven by changing consumer preferences and increasing acceptance of cards by businesses.
'The Covid-19 pandemic reinforced this trend, with many businesses discouraging the use of cash due to hygiene concerns, while consumers also used less cash and made an increasing share of their purchases online.'
Even before the pandemic in 2019 just 32 per cent of in-person transactions were done with cash.
Reserve Bank rules were updated in 2013 allowing retailers to charge customers a fee to reflect the merchant fees credit card companies were charging them, but they are banned from charging excessive fees.
This has seen credit card merchant fees decline during the past decade.
A Reserve Bank paper by economists Troy Gill, Cara Holland and Georgia Wiley revealed Diners Club had the highest average transaction fees of 1.7 per cent. American Express was also dear, with typical fees of 1.3 per cent. The more mainstream credit card brands Mastercard and Visa had average merchant fees of 0.9 per cent
FAQs
Physically running a credit card rather than keying in its numbers or running a stored card number may help lower your merchant fees. Therefore, we recommend swiping/dipping/tapping cards any time you have the chance.
What are the fees for tap and go? ›
The RBA estimates that retailers pay an average of about 0.55% of the transaction's value in a "merchant service fee" to their bank when your payment goes through the credit card network. But if your purchase goes through the EFTPOS system, this fee drops to 0.15%.
How much does it cost me to use my credit card? ›
Understanding credit card costs
The actual amount of interest you'll pay will depend on your specific card, but the typical annual percentage rate (APR) charged on credit cards is usually around 19%.
How much is the fee to use a credit card? ›
The average credit card processing fee ranges between 1.5% and 3.5%.
What are the disadvantages of tap and pay? ›
Unfortunately, there are some drawbacks, or at least concerns, with contactless payment methods. Fraudsters are working to steal payment data and other valuable bits of info. Lost or stolen devices, meanwhile, could lead to unauthorized purchases and thus chargebacks and other issues.
Does tapping cost more? ›
The Australian Retailers Association estimates banks charge businesses around $500 million every year to process card transactions. Fees for tap-and-go are about four times higher than EFTPOS and add about 40¢ to a $100 transaction for a retailer or merchant.
How do I avoid tap and go fees? ›
Mickenbecker said shoppers could pay in cash to avoid the transaction charges or opt to insert a debit card as that typically attracts a smaller fee than tap and go.
What is the maximum amount in tap and go? ›
Upon Activation, you can manage such individual's Account and enjoy different features as amended by us from to time. The balance limit and the annual aggregated total deposit of such individual's Account are HK$3,000 and HK$25,000 respectively.
What is a tapping charge? ›
A tapping fee is the initial fee charged to homeowners and customers who desire to receive water and/or wastewater service.
Is it cheaper to use a credit card or debit card? ›
Though many credit cards charge an annual fee, debit cards don't. There's also no fee for withdrawing cash using your debit card at your bank's ATM. Credit cards, on the other hand, can charge a cash advance fee plus a steep interest rate for that convenience.
Paying off your monthly statement balances in full each month is the path to avoiding credit card debt. As long as you pay off your statement balance in full, your grace period kicks in and you can make purchases on your credit card without paying interest until the next statement due date.
Should I pay off my credit card in full or leave a small balance? ›
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
How to swipe a credit card without charges? ›
The best option is to get a card that offers cash withdrawals without any charges or fees. While it might be difficult to find one of these cards, there are a few that do. In addition, such cards usually charge high joining fees.
Can I charge my customers a credit card processing fee? ›
The answer is: yes, if your business operates in states where it is legal to do so. As of the time of publishing this, the practice of imposing additional fees on credit card transactions (i.e., credit card surcharges) is prohibited in only three U.S. locations: Connecticut, Massachusetts, and Puerto Rico.
How to avoid credit card fees? ›
You can avoid some of the most common credit card fees by choosing the right card, keeping an eye on your credit limit and paying off your balance on time each month.
Is it better to tap or insert credit card? ›
Tapping to pay using your phone may be even more secure, as it uses an even smaller near-field technology to transmit its signals. While no system is perfect and the scammers are constantly innovating to circumvent security measures, your contactless card is leading the way in credit card security.
What happens when you tap your credit card? ›
When you place your card within a few inches of a contactless-enabled payment terminal, your payment information is transferred. While it's often referred to as “tap to pay,” no tapping is actually needed.
Does contactless pay cost more? ›
No extra cost
Businesses pay the same fee applicable for a transaction with a regular credit card.
What happens when you tap your card? ›
You pull out your Visa contactless card to tap the payment terminal and this kicks off the authorization process. Contactless payments use Near Field Communication (NFC) technology, allowing the payment terminal to read your payment information within 2 inches of your card or mobile device.
