What is a credit card surcharge?

Businesses must pay processing costs to accept certain forms of payments, most notably credit cards. To afford this additional expense, businesses can choose to apply a surcharge to the transaction. This added charge is passed along to the consumer, typically in the form of a percentage-based fee applied to the total cost of the transaction.

Knowing about surcharges when using your credit card is important because the costs can add up.

A credit card surcharge is a fee merchants can apply to credit card transactions to cover the cost of accepting credit cards as a payment method.

Some businesses tack this fee onto their products or services when processing credit card payments, and are usually represented as a percentage of the transaction. Alternatively, some businesses may account for the processing costs by increasing the prices they charge for their products.

Most consumers don’t consider the surcharge because it’s a fraction of the total cost, but surcharges add up. From EFTPOS payments to American Express transactions, credit card surcharges range from under 0.5% – 2%.

» MORE: What are credit card merchant fees?

When are surcharges applied?

Surcharges are applied to credit cards, but some businesses may also add a surcharge for debit cards and other types of payment methods that cost them money.

Businesses can’t charge more than it costs them to process the specific payment type. So, for example, if it costs a business 1% to accept a Visa card, it can’t charge a surcharge in excess of 1% of the transaction.

You might be paying surcharges in other places without even realising it. Not only do restaurants, shops, and petrol stations charge card processing fees. Some utility bills and even payments to the Australian Taxation Office (ATO) can attract a fee based on the type of card you use and the amount you pay.

For example, if you booked a Virgin Australia flight with your credit card, you would’ve paid a 0.97% surcharge. While it’s up to the business, you can expect to pay the surcharge in some places where you virtually ‘swipe’ your credit or debit card online.

Wherever you buy your products and services, keep an eye out for surcharges and fees, as they inflate the cost of the item. Even if you choose to proceed, it’s important to understand the total cost breakdown and be an informed consumer.

The more you know about credit card fees, the better equipped you are to make decisions.

The cost of a surcharge

All Visa and Mastercard credit (and debit) card payments and American Express cards issued in Australia will incur a surcharge. Surcharges also include GST.

According to the Reserve Bank of Australia’s cost estimates, here’s what you can expect to pay:

Visa and Mastercard credit cards: 1% – 1.5%
Visa and Mastercard debit cards: 0.5% – 1%.
American Express credit cards: 2% – 3%
EFTPOS debit and prepaid: Under 0.5%

Pay close attention to how your surcharge fees add up month over month. Credit cards are more expensive to process than debit cards, so keep this in mind as you pay for items. Visa and Mastercard debit surcharges are around 0.5 – 1%.

Surcharge example

Let’s say you buy $50 worth of petrol on a Visa credit card. The surcharge will be $0.50 – $0.75. It won’t break the bank, but if you make a larger purchase of $1,000 with an American Express card, the surcharge will be $20 – $30.

Ban on excessive payment surcharges

The Australian Competition & Consumer Commission (ACCC) bans excessive payment surcharges, but this only applies to EFTPOS (debit and prepaid), Mastercard (credit, debit and prepaid), and Visa (credit, debit and prepaid).

BPAY, PayPal, Diners Club, American Express cards issued directly by American Express, and taxi fares are not subject to this ban, so you should be especially wary of these charges if you make these types of payments.

🤓 Nerdy Tip: Surcharges compound

It’s easy to look at a surcharge fee compared to the total figure and see no problem. In most instances, there isn’t an issue. But in some cases, consumers get the short end of the stick with the point-of-sale charge because they pay a surcharge every time they use the card, which can add up to hundreds of dollars annually.

How to avoid credit card surcharges

When it comes to credit cards, there seems to be a fee for everything — surcharges, setup, monthly and annual costs, international transactions, overdrafts, cash advances, and more.

Every bank and credit card company is different, and there is no set national fee structure. This makes the whole situation confusing, so it’s up to individuals to be conscious of charges.

You can choose to only buy from businesses that don’t charge payment processing fees. You can also make cash or a debit card your primary payment method, only using credit when you absolutely need to. However, this means missing out on the perks that come with using a credit card.

You could also look for discounts, deals, and offers to offset the surcharges or even ask the server if they’re happy to waive the surcharge. It doesn’t hurt to ask, especially if it’s a sizable transaction.

Being wary of credit card charges is important as cash becomes less convenient. Take a look at your credit card statement and keep a list of all the transactions that add a surcharge over three months and make this a part of your regular financial check-up to see where you can save money.