Pinch vs. Punch - How Your Customers Feel About Surcharging

Note: Card surcharging rules changed in Australia on 1 October 2026. Since that date, the major card networks have introduced no-surcharge rules for card payments, so this article should be read as background on customer sentiment and the broader surcharging debate rather than current operational guidance. For more information check current guidance from the RBA, ACCC and your payment provider.

The act of passing on payment processing fees, better known as surcharging, has become a fact of life for Australian consumers.

While more and more merchants are choosing to pass on processing fees, over 70% of Australian consumers say that the mere act of paying the processing fee has them reconsidering whether to make the payment.

In this article we aim to help you better understand the impact surcharging has on your customers, particularly their sentiment towards you and potential impact on your customer experience, and by extension loyalty.

We hope this helps you make a more informed decision about whether you should pass on fees or not.

Why are businesses surcharging?

More and more Australian businesses are choosing to pass these fees onto consumers. Clearly the main driver is to reduce business expenses.

There is also a sense that surcharging is often used to soften the blow of processing costs and make them the payer's problem to deal with instead. Media rhetoric has focused heavily on this, which has heightened consumer interest in the topic and made people even more sensitive to surcharging.

Understanding why payments processors charge what they charge

Transaction fees are the primary revenue stream for many payments companies. It would be ideal if payment services could charge a simple monthly fee, but due to the complex web of fees required to pay banks and card schemes, that is often not viable.

Card processing fees are often structured as what is called a "blended rate". A blended rate is a single fee designed to make it easier to explain the cost, and help both merchants and processors manage expectations. It is common because costs can differ drastically depending on the card that is being used. To put it into perspective, there are many different varieties of Visa and Mastercard cards, and they do not all carry the same cost. Imagine trying to account for that as either an internal cost to your business, or worse, trying to manage expectations with your customers if you are surcharging.

The difference between what processors pay banks and card schemes based on the type of card can also vary a great deal. What Visa or Mastercard will charge for a premium card such as a frequent flyer card, versus a plain bank issued debit card, can be enormous. A blended rate can protect you as a merchant from being surprised by the cost of processing a premium or internationally issued card.

You can find more information on our fees here.

How merchants typically use surcharging

When merchants are left to decide on their own, many choose to surcharge credit card fees unless they operate in a space where it is heavily frowned upon, such as essential medical services.

Merchants that choose to surcharge often collect fewer payments, particularly when they continue to offer customers the choice of transferring funds via EFT. That somewhat defeats the purpose of offering an online payment solution to begin with and most certainly undermines what can be gained by increasing online card payment acceptance.

Transferring funds via EFT, while common, is also problematic for both businesses and their payers. The rise of EFT fraud, a practice where hackers intercept email communications and instruct payers to transfer expected funds into their bank accounts instead of the genuine merchant's, is unfortunately on the rise and has cost some Australian consumers hundreds of thousands of dollars.

The economics of surcharging

Reducing costs for merchants

For small businesses with slim margins, payment processing fees can be a big challenge to absorb and surcharging these fees is a simple way to avoid incurring further cost of delivery that may otherwise impact the bottom line.

This is particularly true in the hospitality industry supply chain, especially when paying small business owners.

Having to absorb payment processing fees when margins are already quite slim due to the complexity of the supply chain and high cost of goods all the way back to manufacturing, can be the difference between being competitive or not in the market.

The customer experience

There is no sugarcoating it, consumers dislike paying processing fees in the majority of cases. This is particularly true in retail scenarios, when the surcharged amount is not made clear until they are at the terminal itself, or worse, sometimes after the initial amount is rung up.

Surcharging does appear to be more acceptable in online payment flows, particularly when coupled with a fee free option, as opposed to it being the only available solution. When customers can choose a lower cost payment method, card payment can remain an option for those who want to put a payment on credit or collect loyalty points with their card.

Merchants that have a high volume of automated recurring payments they surcharge also report a lower amount of friction, and this is probably due to the fact that the customer payment experience is out of sight, therefore out of mind.

The numbers

All in all, when confronted with a surcharge experience, especially when the fee is unexpected, surcharging definitively causes friction, can discourage purchases and erode loyalty. 70% of consumers feel frustrated by surcharges and 50% say they would consider switching to a competitor if they did not surcharge.

A study by the Reserve Bank of Australia found that payment surcharges led to a 15% increase in cart abandonment rates.

This would indicate that when customers see an additional fee at the point of payment, they may abandon the transaction altogether. In the case of service industry payments, this either results in frustrating delays in receiving payments and subsequent issues with cash flow, or the payer opting to EFT the payment, which undermines the efficiencies you can gain as a business, such as automatic reconciliation. It also unwittingly opens the payer up to EFT fraud.

Industry-specific considerations

When deciding whether surcharging is right for you, it is worth mentioning that different industries have varying norms and customer expectations regarding surcharges.

Industries with higher average transaction values, like travel, car sales or electronics, will see different impacts from surcharges compared to industries with smaller average transactions, like retail or dining.

Merchants in each industry should consider these dynamics and customer behaviors when deciding whether to implement surcharges.

Must pay transactions such as utilities bills, rental payments and child care payments, have payment success rates that are less affected by surcharging due to them needing to be paid, but when customers feel coerced into accepting fees, it is going to have a much greater negative effect, and be much more likely to lead them to considering an alternative provider.

Impact on small vs. large businesses

The effect of surcharging can differ between small and large businesses. While large businesses are generally more equipped to absorb the costs, they are also generally less capable of truly understanding the impact surcharging has on the perception of them as a business.

Larger businesses might not view this as such a problem, as they may have loyalty through other means, such as brand power, generally more competitive pricing, long standing consumer trust, or simply being a monopoly.

It is fair to say that the potential downsides of surcharging tend to affect smaller businesses more, who are more reliant on their customers having a friction free experience.

Customer demographics and responses to surcharges

Research indicates that paradoxically, younger consumers and those with higher income levels are generally more aware of and opposed to surcharges.

Tailoring payment experiences to specific customer segments can help mitigate negative reactions and maintain customer loyalty.

Transparency and customer perception

Studies suggest that transparency about costs can enhance customer trust and acceptance. Explaining the rationale behind surcharges, such as increased operational costs, can lead to better understanding and reduced friction at the point of payment.

Of course, consumers are savvy. If you announce record profits while also crying poor you are likely to be called out for it.

This type of strategy works best for small and local businesses with good personal relationships with their customers. A particularly emotive example of this can be found below.

Economic conditions and surcharging decisions

In times of economic downturn or uncertainty, customers are more sensitive to surcharges. During such periods, absorbing fees might be more advantageous because it can maintain customer satisfaction and encourage spending.

Conversely, in a booming economy, customers might be more tolerant of surcharges, allowing businesses to pass on some costs.

It is most likely no coincidence that the issue of surcharging has become a media hot button topic given current cost of living pressures.

Legal and regulatory considerations

In Australia, there are regulations governing the application of surcharges. The Competition and Consumer Act 2010 allows businesses to pass on their costs to customers.

These must be limited to the actual cost of processing the payment.

Overcharging can lead to legal consequences and damage a business's reputation. It is crucial for merchants to understand these regulations and ensure compliance. The fines can be massive.

Because surcharging rules and card payment requirements can change over time, it is worth checking the current guidance from the ACCC, the RBA and your payment providers before making changes to your pricing or checkout experience.

Alternative strategies to manage processing fees

Instead of surcharging, merchants can explore other strategies to manage processing fees such as;

Encouraging the use of lower-cost payment methods.
Incorporating fees into the overall pricing structure.
Waiving fees for on time payments, improving cash flow and business health in other ways.

These approaches can help balance cost management with a positive customer experience.

Conclusion

The effect surcharging has on the outcome of a business is a lot more tricky to analyse than many business owners realise. While it offers clear cost-saving benefits for merchants, the potential negative impact on customer experience, payment success rates and brand perception cannot be ignored.

Considering the efficiency gain of automatic reconciliation, the decrease in consumer risk by offsetting EFT fraud and the fact that there are other ways to offset the costs, such as encouraging lower-cost payment methods or building fees into your pricing, it may be time to consider whether surcharging is the best strategy for your business moving forward.

The right approach will depend on your margins, your customers and the role payments play in your overall experience.