Banks secretly rake in millions from ‘tap-and-go’ contactless credit or debit card purchases with a growing number of businesses passing that directly onto customers as surcharges.
However, a financial expert said there is a way to avoid this trap as he called for banks to end the ‘disgraceful’ practice of processing tap-and-go payments as expensive international credit card transactions.
‘I think tap and go has a lot to answer for,’ Next Payments CEO Tim Wildash told Seven News in April.
‘It is obviously very convenient but it also very expensive, every time you tap and go you are wide open to being used how the banks would like you to be used and that’s via the schemes so they can make more money.’
When a customer uses tap-and-go banks charge a fee that ranges from 1.1% to 2 per cent of the purchase price rather than a maximum of .5% for EFTPOS.
Banks are charging exorbitant fees for the convenience of using tap-and-go contactless cards for making purchase
Manny Notaras, the owner of Canberra’s CAPHs Cafe Bar and Restaurant, said that while the costs of tap-and-go were sometimes absorbed by businesses or fed into higher prices more outlets were passing them on directly as surcharges.
‘I know some other businesses are looking at or have started charging customers, they are really getting dirty looks, some are getting abused,’ he said.
‘The costs are going up, inflation is going up. I know from my end I am $2000 every month out of my pocket.’
Mr Wildash advised consumers to check how much they were being charged to use their own money and also gave some tips on how to avoid being stung.
‘I think the consumers will be surprised when they find out how many fees they are paying through the payments system,’ he said.
‘So, the best way is cash, there is no surcharging on cash.
Next Payments CEO Tim Wildash said consumers would be surprised to learn how much using tap-and-go costs them
Otherwise he said people should check to see if they have the EFTPOS logo on the card they are using and to start using that instead of tap-and-go.
‘If they do they can actually start to demand that it is least-cost routing,’ he said.
‘They need to insert the card and choose “savings” and that gives them the opportunity to save 1.9% every time.’
Council of Small Business chair Matthew Addison said the solution was for the banks to assist businesses by installing payment machines that automatically applied a least cost routing system to make buying as cheap as possible.
‘The banks really need to get behind this and make it simple for business to adopt and simple to understand,’ Mr Addison said.
‘If we can keep the costs of doing business down that means the business doesn’t have to increase their prices.’
‘We are in a really tough economic environment for small business.
‘The costs are going up and here is a way that is no cost to the government, no cost to the budget to enforce a system that will save costs for small business.’
Many shoppers may not be aware that the convenience of tap-and-go means costs are passed on either through surcharges or price increases
However, the banks have been slow in distributing least cost routing systems to businesses, with some of the big four particularly lagging.
Although both the Reserve Bank and federal Treasurer Jim Chalmers have called for the system to be more widespread Mr Wildash accused the banks of dragging their feet.
‘The RBA simply can’t get the traction it needs from the major banks,’ he said.
‘Everyone else wants it. The banks have got some old terminals out there, they don’t want to upgrade them because they are making money from the system as it is today and they will make less money from least cost routing.
‘They need be able to designate a time and some penalties. There is a lot of money involved.’
The Commonwealth Bank and NAB have said they are committed to upgrading their payment terminals to make least cost routing universally available while NAB said they are taking an ‘opt in’ approach.
Mr Wildash said the federal government needs to take action.
‘You look at other countries, the Nordic countries the government the banks, the payments regulator they get together and they sort it out and they go forward and look after their consumers,’ he said.
‘But here nobody wants to agree, nobody wants to help.’
‘Why every Australian should start paying in CASH’: Mum exposes the little-known hidden cost of using a bank card: ‘Use it or lose it’
A mother-of-three has explained why every Australian should start paying with cash instead of cards – showing that tapping for payments is taking money out of the community and giving it to banks.
In a Facebook post that has gone viral, Brisbane woman Fiona Edmunds showed that physical money will retain it’s value no matter how many times it is used.
However whenever you use a bank card, some of the money will invariably be eaten away by fees, which the shop owners are forced to pay.
‘I have a $50 banknote in my pocket and I go to a restaurant and pay for dinner with it,’ Ms Edmunds said in the post that more than 19,000 people have shared.
‘The restaurant owner then uses the bill to pay for their laundry. The laundry owner then uses the bill to pay the barber,’ she continued.
‘After an unlimited number of payments it will still remain a $50 value which has fulfilled its purpose to everyone who used it for payment.’
‘BUT if I come to a restaurant and pay digitally via card, the bank fees for my payment charged to the seller could be up to 3 per cent or $1.50.’
A Brisbane mother-of-three shared an elegantly simple explanation of why cash is superior to paying by card
Ms Edmunds said a similar percentage is imposed on every other transaction using that original $50 if the holder pays via tap-and-go.
‘Payments made by the laundry shop owner, the barber and so on. Therefore after 30 transactions the initial $50 will exist at only $5 and the remaining $45 has become property of the bank.’
While this is a simplified example and fees vary wildly between banks, the principal is sound.
With each subsequent purchase, banks and credit card companies take a small cut from the original $50 until with enough transactions, eventually it becomes theirs.
‘Use it or lose it folks… cash is king,’ Ms Edmunds said.
According to the Reserve Bank of Australia, fees that businesses pay banks or credit card companies to use their payment services – known as merchant fees – have on average decreased over recent years.
‘However, consumers are making more payments with cards than ever before, which is raising total payment costs for merchants,’ the RBA said.
‘Smaller merchants also face notably higher card payment costs per transaction than larger merchants,’ the central bank also noted.
This means that your local café is paying more of their income in fees than a large chain store which turns over a lot more money and can get fee reductions.
Business are allowed to pass on surcharges to customers to cover merchant fees but the amount cannot exceed the fee amount.
Brisbane woman Fiona Edmunds says every Australian should start paying in cash