The RBA Payment Reform: How Does It Affect Your $5 Morning Coffee?
Buying a morning coffee has never seemed simpler. We order our drinks, tap our cards or phones on a payment terminal and within seconds, the transaction is complete.
Behind this seemingly effortless tap is an interconnected network of banks, payment providers and card networks working together to move money from customer to merchant.
On 1st October 2026, Australia’s payment system underwent a significant change. Following reforms by the Reserve Bank of Australia (RBA), card networks introduced rules removing surcharges on covered card payments. In other words, customers can no longer be charged an additional fee – typically worth about 1.5% of the transaction (Commins & Barrett, 2026) – simply for paying with a covered credit or debit card.
Why does this matter to us as consumers?
Card payments have become an increasingly important part of everyday spending. The RBA’s 2022 Consumer Payments Survey found that cash accounted for just 13% of in-person transactions, reflecting the growing shift towards electronic payments. Meanwhile, mobile wallets have made paying by phone almost second nature.
As Australians increasingly rely on these payment methods, changes to the way card payments are priced can affect consumers and businesses alike, even when the purchase is as small as a $5 morning coffee.
So, what prompted the RBA to intervene? And if customers can no longer be charged a separate card surcharge, who ultimately bears the cost of accepting card payments?
How card payments actually work – the players, payment processing fees and interchange fees.
The RBA’s reforms address more than surcharges alone. They also lower interchange fee caps for domestic card transactions and introduce measures to improve transparency around payment costs. To understand why these changes matter, we first need to unpack how the system works.
Imagine buying that $5 coffee with your card.
When you tap to pay, your transaction passes through a network connecting your bank, the café’s bank or payment provider, and the card network, such as Visa or Mastercard. Once the transaction is approved and processed, the café receives the payment, minus the relevant fees.
For the café, accepting card payments isn’t free. It pays its payment provider a merchant service fee to accept and process card transactions. This fee can include several components, such as interchange fees, card network fees and the provider’s own charges.
Two concepts are particularly important:
Merchant service fees
These are the fees a business pays its payment provider to accept card payments. The amount can vary depending on the provider, the type of card used and the business’s payment arrangements.
Interchange fees
These are fees generally paid by the merchant’s payment provider to the bank that issued the customer’s card. They form one component of the overall cost of accepting a card payment.
Although customers rarely see these fees directly, they influence the economics of every transaction. Before the surcharge reforms, businesses could use card surcharges to recover the cost of accepting particular payment methods, subject to the rules then in place.
The role of the RBA - Why did they step in?
The central argument behind the RBA’s decision was that Australia’s card surcharging system was no longer working as intended. Originally, surcharges were meant to encourage consumers to choose cheaper payment methods and signal the cost of accepting different cards. However, as card payments became increasingly common, avoiding surcharges became harder. The RBA found that the prevalence of surcharging had doubled 8% to 16% between 2022 and 2025, and consumers were often left facing unexpected fees at checkout (Reserve Bank of Australia, 2026b).
Rather than helping consumers make informed choices, the system had become a source of confusion and lower transparency.
The reforms aim to address this through two key changes.
Greater transparency for consumers and businesses.
For consumers, removing card surcharges means the price advertised is more likely to be the price they pay at checkout, without an unexpected fee for using their card. For merchants, new fee disclosure requirements for card networks such as eftpos, Mastercard and Visa, alongside major payment providers, aim to make the costs of accepting card payments easier to understand and compare for businesses. This could help merchants identify more competitive providers instead of navigating a less transparent payment system.
Lower interchange fees for merchants
Interchange is one component of the cost of processing a card payment. Under the reforms, the cap on domestic consumer credit card interchange fees fell to 0.3% from 0.8% of a transaction’s value from 1 October 2026, alongside reductions to debit and prepaid card interchange caps. For context, a fee of 0.3% amounts to 30 cents on a $100 transaction, dropping from 80 cents. These changes are intended to reduce the costs businesses face when accepting card payments, with the RBA estimating that these reforms could reduce merchants’ payment costs by around $910 million to $1.1 billion annually (Reserve Bank of Australia, 2026a).
However, removing surcharges does not make the underlying cost of card payments disappear. Businesses may instead incorporate these costs into their advertised prices. The RBA estimated that fully incorporating the surcharges previously paid on designated card networks into product prices could increase the overall consumer price level by around 0.1% (Reserve Bank of Australia, 2026a).
This is a relatively small estimated effect, but it highlights the central trade-off: consumers gain more transparent, upfront prices, while some of the cost may be spread across customers rather than paid only by those who use particular cards.
Why the discourse? The psychology of hidden fees
If the RBA expects prices to rise slightly as businesses adjust to the removal of surcharges, why has the reform been a source of heavy debate? The answer lies in how consumers perceive prices, not just how much they pay.
Imagine buying your usual morning coffee. You see the advertised price, tap your card, and only then discover an extra fee at checkout. Even if the surcharge is small, it can feel like an unwelcome surprise: a cost you did not expect when deciding to buy. When that same cost is incorporated into the advertised price, the total may be similar, but the experience is different. The higher price is visible from the beginning, giving consumers a clearer picture of what they are paying.
This reflects a broader principle in consumer psychology: people do not evaluate prices in isolation, they also respond to how costs are presented. A separate surcharge can feel like an additional loss, while a cost embedded in the advertised price may attract less attention as a distinct fee. Hidden costs can therefore feel almost invisible until the moment they are charged.
But there is a trade-off. An upfront price increase may make a product appear more expensive before a consumer even considers buying it. The surcharge disappears, but the higher advertised price may still influence purchasing decisions. Ultimately, the reform is not simply about whether consumers pay more or less. It is also about whether they can see, understand and anticipate the costs of the choices they make.
Until next time,
WIF Team🩵
Written by Tishya Anand
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