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Jurisdiction Australia, but could apply globally for all I know.

Looking at major Australian bank websites, their EFTPOS contracts mention nothing about transaction fees being different for small amounts than large amount - it's a flat percentage (about 1.5% merchant fee).

Why then do they feel they can add add 20-30 cents (varies) if the amount is under $10-$15 (varies)?

Edit:

The flat fee being added is applied to all credit cards even though most cards used in Australia are either MasterCard or Visa which don’t have a flag fall fee.

The extra fee is not added for debit cards, which in Australia are fee free for the merchant.

Bohemian
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    There is fee on vendor site. It could be fee for processing the payment (visa/masters to vendors bank) or phonecall charge (some terminal work as modems and call the bank system to process the charge). For small amount those fees might "eat up" vendor profit margin so they try to discourage doing such. It's also illegal in EU. – SZCZERZO KŁY Jan 21 '21 at 13:04
  • @SZCZERZOKŁY Those days are long gone in Australia. Phone calls are basically free (all telco providers offer unlimited free local calls) and it’s been decades since banks charged an additional flat fee on top of the percentage fee. – Bohemian Jan 21 '21 at 13:08
  • FWIW this is now illegal in the the UK. The price must be the same for any method of payment. Before it was illegal, one notorious example was the Driver and Vehicle Licensing Agency, which added a 3% for online license renewals paid by credit cards rather than debit cards, even though an annual vehicle license costing more than £100 was hardly a "small amount." – alephzero Jan 21 '21 at 17:10
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    An alternative practice at many US businesses is a minimum amount for using a credit card. – Barmar Jan 21 '21 at 18:25
  • @alephzero in Australia, most govt based fees, whether on line or in person, pass on the entire, but exact, percentage fee, but it’s only a percent or two. Big merchants tend to absorb it. Many merchants pass it on correctly. It’s only the very small merchants that do this, eg the local old-school hamburger joint. – Bohemian Jan 21 '21 at 20:05
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    fwiw, this is nearly always against the agreement with the merchant account provider. If a few folks complain about it, they will revoke the owner's merchant account, so don't be shy. – dandavis Jan 21 '21 at 21:38
  • @Bohemian In Europe there was (is) a universal flat rate number on which terminals connected to card operators (think toll fre numbers). Vendors paid to use them monthly, the more calls the better for business but only if they sold enough things above "profit" limit. Also it's nice for business "you're $2 away from ability to pay with CC" – SZCZERZO KŁY Jan 22 '21 at 14:25
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    @dandavis - Do you have a source for that? – Bobson Jan 24 '21 at 13:51

5 Answers5

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Here in the US, stores sometimes charge such a fee for small credit card purchases. Not as much as they used to, I think. And some refuse to accept credit cards for small purchases.

When I had a small retail business. the fee to process a credit card payment was, I forget the exact numbers, but like 30 cents plus 2% of the charge. The important point being, it wasn't a flat percentage, it was a percentage plus a small amount. For a $1,000 charge that extra 30 cents was trivial. But for a charge of a dollar or two it was a significant percentage. Maybe it's different in Australia. I'd expect the fees to be different depending on what credit card company you're working with.

Jay
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    When credit cards were first introduced at gas stations in Canada, some group of people were protesting the extra charge being distributed to non-CC users, so they would get 10 cents of gas and stop the pump, causing the station to actually lose money on the transaction due to the flat rate. Of course, it takes a while to fill your tank that way. – Nelson Jan 21 '21 at 17:04
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    This is exactly right at least for the US. I have worked with connecting websites to several card processors, most have a small fee (~30 cents) plus a percentage to ensure they're making money on even tiny transactions. In response, most retailers have a required minimum purchase (say $1) before they'll accept a card, rather than try to explain a surcharge. Also, many places (often gas stations) will offer a "discount" equal to the processing fee for cash purchases, to get around the ban on charging more for using a card. – brichins Jan 21 '21 at 18:41
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    I'll note that many of these practices (e.g., providing a discount for cash purchases) were a violation of standard credit card agreements. However, such contract provisions have since been made illegal in the US. – Brian Jan 21 '21 at 19:28
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    @Brian Providing a discount for cash purchases was the single route that was permitted by the agreements; what was banned was adding a CC surcharge to the "menu price" (along with minimum purchases). – chrylis -cautiouslyoptimistic- Jan 21 '21 at 20:55
  • So why is the vending machine more than happy to churn out $0.25 transactions all day. Are they charged a higher percentage fee? – crasic Jan 21 '21 at 23:21
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    I used to work with vending machines. Between the bank and payment processor, the company was charged 16c + 4.5% per transaction. For the majority of machines, this resulted in the setup of a 25c card surcharge, regardless of item cost as the payment system did not support variable surcharges. If a customer demanded the surcharge be removed, the item prices would be increased marginally to compensate. – toxicantidote Jan 22 '21 at 00:03
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    "Here in the US, stores sometimes charge such a fee for small credit card purchases." There are some states, e.g. Texas, where it is illegal to add a surcharge or fee for using debit or credit cards instead of cash. You can offer a cash discount over the posted price, but you cannot add anything for using a card. See https://statutes.capitol.texas.gov/Docs/BC/htm/BC.604A.htm – Ron Maupin Jan 22 '21 at 01:15
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    @RonMaupin Yes. I don't have a state by state list, but some states that's illegal, others it's completely legal. When I lived in New York 30 years ago (I don't know if the law has changed since then) it was illegal to charge extra to use a credit card, but it was legal to give a discount for using cash. So ... what difference does that make? Whether you say the product is normally $10 but we charge an extra $1 if you use credit, or it's normally $11 but we give a $1 discount if you use cash, the end result is it's $11 if you use credit and $10 if you use cash, so I don't see the point. – Jay Jan 22 '21 at 03:37
  • @Jay, the point is that after first doing the cash discount, the retailers found it too burdensome, and dropped it. Cash registers really did not play ball, and the clerks could not do math. Whatever the reason, the cash discounts disappeared here years ago. – Ron Maupin Jan 22 '21 at 03:46
  • @RonMaupin I don't see why giving a cash discount would be more burdensome than charging a credit surcharge. If you mean either way, it's more trouble to charge a different price for cash vs credit, that its easier to just suck up the loss, I'm sure some businesses come to that conclusion. There's the hassle of training employees, having something on your cash registers to calculate it, and dealing with customers who are annoyed about paying a higher price. Is it worth it for 30 cents? I'm sure some say no. – Jay Jan 22 '21 at 16:31
  • In Tennessee, can confirm I've seen in 2021 a vending machine that had posted prices that seemed high to me, and a label that stated a 20 cent discount for cash purchases which brought the price to the range I expected, if paying with cash. – gatherer818 Jan 24 '21 at 01:51
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Many small businesses are still on old EFTPOS contracts where they are billed the flat fee per transaction, so they pass it on. I've helped a few family friends and local businesses switch to more modern transaction providers that don't charge flat fees.

Every one of these businesses had different fee structures because it used to be standard for the bank to individually negotiate each EFTPOS agreement, and would frequently stick small businesses with flat fees that larger businesses did not need to pay.

As for the other answers saying charging a flat transaction fee is illegal, this is false. It's illegal if your transaction fees don't reflect your actual costs. If your contract with the bank specifies flat fees, it's legal to pass them onto the customer

coagmano
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  • I think the point is that the bank charges the merchant and the merchant cannot pass the fee on to the consumer, hence a flat fee of .30 etc would be paid by the merchant even on a $1 sale which would not be good for the merchant. That's also why some merchants give a discount for cash, since they can't charge more for credit. – AbraCadaver Jan 23 '21 at 05:33
  • @AbraCadaver Looking at the government advice here: https://www.accc.gov.au/business/pricing-surcharging/payment-surcharges/qa-payment-surcharges it says "The permitted surcharge is an amount not exceeding your costs of acceptance for each designated payment type" and "It is important to note that different businesses have different costs of acceptance. In general, smaller merchants’ costs might be higher than these indicative figures." It's extremely clear that you are allowed to pass on flat fees if you are charged a flat fee – coagmano Jan 24 '21 at 22:13
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I ran a small business in the UK some years ago, when charging extra for credit card transactions was legal. We used to charge an extra 50 pence for transactions under £10.

We did this, not because the card charges were that much (as I recall, we paid 1.5% for all values, or 15p on £10), but because we could.

Margins are tight on small businesses. Every little helps. This was a small contribution overall.

FWIW, my staff were instructed to waive the fee if anyone questioned it, but nobody ever complained.

CatchAsCatchCan
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    Its actually illegal in the UK to charge to use a Debit/Credit card now. – GamerGypps Jan 22 '21 at 09:23
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    So you were gouging. Nice. – Bohemian Jan 22 '21 at 19:54
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    @Bohemian Every business runs by buying at a low price and selling at a higher one. I would say we sold card services at a profit. At what point does profit become 'gouging'? – CatchAsCatchCan Jan 22 '21 at 20:57
  • @GamerGypps I know. As I said in my post, this was several years ago, and charging for card services was legal at that time. – CatchAsCatchCan Jan 22 '21 at 20:58
  • @Bohemian many large businesses charged a lot more than 50p and for much larger transactions. Generally on seeing such a situation I use a different method of payment. – Jontia Jan 22 '21 at 23:18
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    In the UK it is still fairly common for small local shops to have a minimum fee to accept card payments though (annoying when preferring to use contactless payments in the pandemic). I'm not sure if this is due to a flat fee they have to pay or just because they can still – Martin Smith Jan 22 '21 at 23:21
  • @MikeScott It is not a charge, just a minimum spend. So they won't accept card if you only buy items worth, say, £2 and the choices are pay cash or add something extra to the shopping basket to exceed the threshold – Martin Smith Jan 23 '21 at 21:02
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    @MartinSmith Particularly, though not so relevant now, when it's a £5 minimum in the pub and a pint costs £4.50. – Asteroids With Wings Jan 23 '21 at 22:33
  • @AsteroidsWithWings Thats what pork scratchings are for ;) But regardless is it technically still illegal to have a minimum spend for card as well but of course it isnt enforced particularly well. I do feel for small businesses however so i generally turn a blind eye. – GamerGypps Jan 25 '21 at 08:38
  • @GamerGypps It is not illegal (though Visa and Mastercard technically don't permit it) – Asteroids With Wings Jan 25 '21 at 11:06
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That's right. 1.5% is the unwritten rule for leased PDQ machines. In the UK, I've worked with about 6 or 7 retailers and all of their card terminal suppliers have the same charging rate. It was typical for business to charge anywhere from £0.50 to £1.00 as a "card usage fee" where the transaction was below £5 or sometimes even £10.

In 2017, the EU banned this practice, while the UK was still abiding by EU law post-Brexit however a lot of companies got around this by changing the word "card charge" to "service charge" which is to imply you are being charged for their service to process your card (which may not be any effort at all).

Lesson learned: financial institutions will always be quick to get around the law when it threatens their revenue.

Jonas Benz
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  • So it’s basically the same banking fee landscape and same merchant behaviour. Why do they do it? Is it a carryover from the days when there was a flat fee? Are there providers that charge a flat fee on top of the percentage in the UK? – Bohemian Jan 22 '21 at 19:53
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Unless the merchant actually incurs that fee, this practice is illegal in Australia. These days, EFTPOS fees for mainstream credit/debit cards are a small percentage (1-2%) of the amount, without any flat fee on top, and the merchant may only pass on the actual amount, not more.

Amex and similar non-bank cards are exempt from this law.

For details see https://www.accc.gov.au/business/pricing-surcharging/payment-surcharges/qa-payment-surcharges

This linked site even gives an example of when this law is broken when buying a coffee for $4.00 and being slugged a 50¢ processing fee.

The Australian government takes this kind of extortion seriously. The penalties currently listed on that site are:

If we believe that a business has charged a payment surcharge which is excessive, we can issue an infringement notice to the business:

  • 600 penalty units ($133 200) for a listed corporation
  • 60 penalty units ($13 320) for a body corporate
  • 12 penalty units ($2 664) for a person other than a body corporate.

We can also take court action against a business, in which we can seek pecuniary penalties:

  • 6,471 penalty units ($1 436 562) for a body corporate
  • 1,295 penalty units ($287 490) for a person other than a body corporate.

It’s payback time!

Bohemian
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    Just because the network doesn't, doesn't mean that no one does - there is more than one entity that could be charging the merchant a fee. Their bank may have a flat charge. They may be using a third party processor for their point of sale that has a flat charge. You can certainly try to challenge them on it if you want - they may not be in compliance - but don't assume that it's impossible either. – Bobson Jan 21 '21 at 15:05
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    You seem to have skipped over a lot of the pertinent information in the page you linked. It says pretty explicitly that merchants can surcharge based on their cost and while most fees are a strict percent of the transaction, some are a flat fee. There is also a list of services merchants can include in their surcharge calculation, like fraud prevention, the surcharge just can't exceed the merchants actual cost. Simply put, you have absolutely no idea what this merchant's costs are. – quid Jan 21 '21 at 16:40
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    Credit Card processing is almost never directly with the major cards. You always run it through a payment processor. There are usually couple major players in the area. Places like the US have so many it is just absurd (easily couple dozen in any major areas). There are a LOT of features and different regulations, web portals, PCI compliance, etc. etc. I did a lot of ecommerce payment processor development. – Nelson Jan 21 '21 at 17:07
  • @Bobson in Australia, banking is streamlined and standardised. There is no “network” or “third party” etc. EFTPOS devices are supplied by and connect directly with the bank the merchant signs up with, and that connection handles everything and all card types. There are no extra fees. Although, not all card types have the same percentage fee, the linked legislation deals with visa, MasterCard and debit cards which accounts for a very high percentage of cards held in Australia. Most small merchants refuse to accept Amex et al, which is their right. – Bohemian Jan 21 '21 at 19:51
  • @quid there are no extra fees in Australia. See previous comment. – Bohemian Jan 21 '21 at 19:52
  • @Nelson there are no extra fees in Australia. See comment above. – Bohemian Jan 21 '21 at 19:55
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    @Bohemian - Yes, the device goes directly to the merchant's bank. Who then sends the transaction via the appropriate card network (Visa, MC, etc) to the issuing bank. That's at least two parties who might be interested in collecting fees. I'll admit the concept of a gateway/TPP is much less common in AUS, but that doesn't mean they don't exist at all - especially when it comes to international chains. Again: You may certainly be right here, you just need to understand that you're not guaranteed to be right based on what you've found. – Bobson Jan 21 '21 at 20:05
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    @Bohemian - Also, from your linked page: "If your bank or payment facilitator charges you on a flat fee basis (this is less common than costs being expressed as a percentage) then you can apply a flat fee surcharge. This will be made clear on your monthly statement." Therefore flat fees can exist. – Bobson Jan 21 '21 at 20:05
  • @bobson true, but they are the rare exception nowadays - the law was written to cover all cases, no matter their frequency. It also expressly doesn’t cover non-bank payment types. – Bohemian Jan 21 '21 at 20:08
  • @Bobson yes the bank routes it appropriately, but the fee is just a percentage. Also from that site: * Accepting a Visa or MasterCard debit transaction may cost a business around 0.5 -1 per cent of the transaction value.*. I will update my question to emphasise that the flat fee cost slug applies the cards that do not have such a fee. – Bohemian Jan 21 '21 at 20:15
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    You don't have visibility in to the merchant's banking and POS relationships, you have no idea what fee structure the merchant has agreed to. Your quoted page also indicates average fee amount ranges, and leaves open the possibility of flat fees. You seem to have skipped all of that in this answer only paraphrasing an example scenario you like and quoting the penalties from a different page. If you contend that there is some streamlining legislation which standardized fees and all banks must use, that would be information to include in your answer rather than asserting it in a comment. – quid Jan 21 '21 at 22:16
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    You also haven't stayed consistent in distinction between credit and debit transactions. Your question says credit, your answer indicates credit/debit as though they're interchangeable, your comment here quotes a section related to debit transactions, and the page you quoted indicates different fee relationships for credit and debit and different allowable considerations for credit transactions. – quid Jan 21 '21 at 22:31
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    as @Bobson has pointed out, this answer if misleading because it's legal to pass on flat fees if the shop is charged those flat fees by their bank. Many smaller businesses are still on contracts that specify flat per-transaction fees – coagmano Jan 22 '21 at 02:33
  • That doesn't actually help because the distinction you are trying to ignore actually matters. Credit is a materially different transaction, and has different fees. – quid Jan 22 '21 at 19:42
  • @quid I edited the question: merchants only add the fee for credit cards. In Australia, debit cards are fee free for the merchant. Regarding “I don’t know what fees the merchant pays”, true, however I can’t find a contract that charges flat fees. I will do more research on available contracts. I’ll report a merchant to the authorities and see what happens. Of course that will take some time to get a result. – Bohemian Jan 22 '21 at 19:47
  • @Bohemian - If you do hear anything back, please let us know! – Bobson Jan 24 '21 at 13:52