Australian firms mask price hikes behind credit‑card surcharge ban

The credit‑card surcharge ban: purpose and scope

On 1 October 2023 the Reserve Bank of Australia implemented a ban on merchant‑imposed credit‑card surcharges. The reform, backed by the Treasury's 2023 credit‑card fee reform, aimed to improve price transparency, lower hidden fees and align Australian practice with other OECD economies. Under the rule, merchants may not add a fee that exceeds the cost of processing the transaction, which is typically around 1.5 percent.

Business reactions: using the ban as a cover for larger price hikes

Shortly after the ban took effect, a wave of price adjustments appeared across cafés, restaurants and retail outlets. While some of these changes reflect genuine cost pressures – higher rent, wages and energy bills – many analysts see a pattern of “round‑up” pricing that goes well beyond the prohibited surcharge amount.

Round‑up pricing in cafés and restaurants

In the hospitality sector, a common tactic is to increase menu prices by a fixed amount that coincides with the removal of the surcharge. For example, a latte that previously cost $4.20 with a 1.5% surcharge (approximately $4.27) might be listed at $4.50 after the ban. The extra $0.23 is not a surcharge but a direct price increase that is harder for consumers to notice because it replaces the familiar “extra fee” line.

Industry watchdogs have documented instances where the new price is higher than the combined cost of the original price plus the typical surcharge. In some cases, the increase reaches 5 to 7 percent, a figure that far exceeds the 1.5 percent cap that the ban sought to eliminate.

Retail sector tactics

Retailers have adopted similar approaches. Many have adjusted their “price‑plus‑tax” models, rounding figures up to the nearest $0.50 or $1.00. This practice, sometimes called “price rounding”, masks the true cost of the product and can lead to cumulative price inflation across a basket of goods.

One analyst noted that the practice is especially prevalent in categories with low price points, such as confectionery, bottled water and fast‑food items. A $1.99 product might be re‑priced at $2.20, a 10 percent jump that is not directly linked to processing fees.

Impact on consumers

Consumers feel the effect of these hidden increases in several ways:

• Higher out‑of‑pocket costs – Even without an explicit surcharge, the final price paid is greater.
• Reduced price transparency – Shoppers can no longer rely on a separate fee line to understand the true cost of using a card.
• Potential shift to cash – Some customers revert to cash to avoid perceived price hikes, which can affect cash handling costs for businesses.
• Inflation perception – The ABS inflation data shows that food and non‑alcoholic beverage prices have risen faster than the overall CPI, and price‑rounding may be a contributing factor.

Consumer groups argue that the ban, while well‑intentioned, has unintentionally created a loophole that allows merchants to embed higher costs in the base price.

Regulatory response and enforcement challenges

The ACCC price transparency guidelines require businesses to display clear, itemised pricing. However, distinguishing a legitimate price increase from a disguised surcharge is complex. Enforcement agencies must examine pricing patterns, compare pre‑ and post‑ban prices, and assess whether the new price exceeds the cost of the transaction by a reasonable margin.

In a recent statement, the ACCC said it is monitoring “price‑rounding” practices and will pursue action where evidence suggests that merchants are using the ban to mislead consumers. The agency also encourages shoppers to report suspicious pricing through its online portal.

What shoppers can do

Consumers can protect themselves by adopting a few simple habits:

1. Check the unit price on menus and price tags. If the price appears rounded up, compare it with the pre‑ban price if possible.
2. Use cash for small purchases where the price difference is noticeable.
3. Report suspected price‑rounding to the ACCC or local consumer affairs bodies.
4. Follow price‑tracking websites that monitor changes in café and retail pricing.
5. Stay informed about the latest regulatory updates from the Reserve Bank of Australia and the University of Sydney research on pricing strategies.

By staying vigilant, shoppers can push back against covert price hikes and help maintain the transparency that the surcharge ban was meant to deliver.

As the market adjusts, regulators, businesses and consumers will need to work together to ensure that the spirit of the reform – a fairer, clearer pricing environment – is not undermined by subtle pricing tricks.