The ‘tap and go’ trap: big banks overcharging retailers $550 million a year

It’s no secret Aussies have an appetite for ‘tap and go’, but the trend of whipping out your credit card or debit card to use the service when paying for groceries or the restaurant bill could be hurting small businesses. 

Retailers raised the flag last week that big banks and credit card providers are hitting them with unnecessary ‘tap and go’ fees adding up to as much as $550 million a year! 

The Fairer Merchant Fees Alliance - made up of four of Australia’s major retail associations* - said ‘tap and go’ transactions often get automatically sent through more expensive global payment networks like Visa payWave and MasterCard PayPass.

These systems charge fees four times higher than debit scheme networks such as EFTPOS, adding about 40c on top of a $100 card transaction. 

Although 40c may seem like a low amount, it’s estimated to set retailers back by a whopping $350 million up to $550 million in extra costs annually. And some of those costs then get passed onto customers as surcharges or higher price tags. 

RELATED ARTICLE: RBA reveals fee gouging on tap and go payments continue to skyrocket

Australian Retailers Association’s executive director, Russell Zimmerman said the current system is blowing a hole in business’ bank accounts

“With several retailers advising that they are insolvent, and many Australian retailers concerned about reduced profits, dealing with exorbitant fees forced on them by the banks is a problem they should not have to face,” he said. 

“Australian retail needs the banks to step up, do the right thing for the retail industry, and offer Least Cost Routing to all retailers large and small.” 

Why Least Cost Routing could be the solution

Least Cost Routing (LCR) essentially gives power back to the merchant. It involves giving retailers a choice between routing a ‘tap and go’ transaction via the debit network with the lowest fees (EFTPOS), or sticking to the default network programmed on the card (typically Mastercard or Visa). 

In fact, the Reserve Bank could consider making LCR mandatory for banks, as part of its Review of Retail Payments Regulation in the coming months. 

“None of the major banks has taken advantage of the ability to implement LCR ‘in the background’ as a way to offer improved pricing for smaller and medium-sized merchants on simple merchant plans," the RBA said in its Issues Paper on the upcoming Review. 

RELATED ARTICLE: Shop at Coles? You could now be charged when you tap and go

However, LCR isn’t necessarily good news for consumers. 

For instance, when Coles switched to the system last month, some shoppers started getting charged for ‘tap and go’ payments. That’s because a few card providers (23 in Mozo’s database) still charge an EFTPOS transaction fee, which ranges anywhere from $0.50 to $2.00 per transaction. 

Keep in mind though that many of these providers do have a certain number of free transactions or rebated fees every month. In other words, cardholders don’t have to worry about the EFTPOS fee as long as they don’t exceed the cap. 

Tips for dodging ‘tap and go’ fees 

Before you hit the checkout, here are a couple of other ways to avoid ‘tap and go’ fees: 

  • Insert, don't tap: It may take a few seconds more, but doing things a little old school while shopping means you can wave goodbye to pesky EFTPOS fees. 
  • Make the switch: If you’re worried that your current provider charges an EFTPOS fee, switching to a different one is always an option - there are plenty of cards out there without the fee. 

Interesting in seeing how your plastic compares to the rest? Check out the deals below, or head over to our credit cards comparison table to compare even more options.

Compare credit cards - last updated 23 October 2021

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*The Fairer Merchant Fees Alliance is comprised of the Australian Retailers Association, the Council of Small Business Australia, the Masters Grocers Association, and the Australian Convenience and Petroleum Marketers Association.

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