Consumer group CHOICE wants to see a proactive cash surcharge ban introduced to prevent businesses from slugging shoppers with a fee to use physical money. (Source: Getty)
Australians could be slugged with a surcharge to use cash if proper protections aren’t put in place. That’s the warning issued by consumer group CHOICE to the Reserve Bank of Australia (RBA) as it weighs up whether to ban debit and credit card surcharges.
Professor of Economics Richard Holden told Yahoo Finance that a cash surcharge could be introduced to keep beleaguered cash-in-transit company Armaguard afloat. That’s why CHOICE believed the central bank needed to consider outlawing any possible fee added to those who prefer to pay with physical money.
“As cash becomes more and more expensive to accept, and the surcharge ban turns card payments into a free way for consumers to pay, it seems inevitable that some businesses will seek to discourage cash use by placing a surcharge on cash transactions,” it said in its submission.
CHOICE referenced the RBA’s Issues Paper, which suggested that if debit and credit surcharges were banned, it would likely increase Aussies’ use of cards for payment relative to cash.
That’s due to the assumption that some people might have been using cash to escape a surcharge on their cards. A poll of more than 9,500 Yahoo Finance readers found 73 per cent specifically used cash to avoid card surcharges.
But without that added fee, people might be more inclined to tap and go more frequently.
However, the downside of that is that fewer people would use cash than they already do.
The government estimates that 1.5 million Australians currently use cash to make more than 80 per cent of their in-person payments, while many more millions use it from time to time.
But the RBA’s most recent figures showed cash payments accounted for just 13 per cent of all transactions and 8 per cent of the value of all consumer payments in 2022.
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A report from Boston Consulting Group (BCG) found there were “hidden” direct, indirect and back-office impacts that come with physical money.
It added that there was a 3.9 per cent cost per transaction for dealing with cash at the point-of-sale (POS) for businesses when you add up those three types of costs, compared to just 1.8 per cent for card payments.
Holden told Yahoo Finance that cash can be a huge burden for some businesses.
“They need extra insurance, they need to have a float at the start of the day, they need to bundle up cash at the end of the day, and take it to a night safe or take it to the bank,” he said.
“It’s a giant problem and it’s expensive.”
Professor Richard Holden said a surcharge on cash could be possible in the future as it has become expensive to handle. (Source: UNSW/Getty)
At the moment, retailers have to provide at least one fee-free method of payment, and if that’s not possible, the business must include the minimum surcharge payable in the displayed price for its products.
If card surcharges were banned, CHOICE is worried that debit and credit cards would emerge as a fee-free payment method, and it could open the doors for a cash surcharge.
“It is clear that cash is not only expensive to accept now, but is likely to become even more expensive to accept in the future, as its use further declines in response to the proposed card surcharge ban,” CHOICE said.
“Card payments are cheaper to process than cash payments, and cash payments are getting more and more expensive. It follows that some businesses will attempt to discourage cash use by putting a surcharge on it, just as they did with cards two decades ago.
“There is nothing currently in place to prevent this.”
CHOICE is calling on the federal government to look into this issue “proactively” and protect cash from being surcharged.
Labor wants to introduce a law at the start of next year that would force essential businesses like GP clinics, petrol stations, and supermarkets to always carry and accept cash.
But non-essential services like cafes and pubs wouldn’t be covered, and they could slap on a physical money surcharge.
The government is also keen on getting its card surcharge ban legislated by January 1.
“Unless these issues are looked at as a whole, the burden of surcharges will just shift from one group of consumers to another. Instead of card users paying, cash users, many of whom have no other choice, will pay,” CHOICE said.
Consumer group CHOICE wants to see a cash surcharge ban be proactively organised. (Source: Getty) ยท Jenny Dettrick via Getty Images
Holden told Yahoo Finance that a long-term solution needed to be organised for Armaguard, which is responsible for transporting around 90 per cent of Australia’s cash around the country.
It nearly collapsed last year, but was saved by a $50 million lifeline from the Big Four banks, supermarkets, Australia Post and other key stakeholders.
That deal was renewed this year, but the UNSW economist suggested this had raised questions about whether this bailout would become an annual issue to deal with, or if the government needed to step in and take control of the company to ensure its survival.
“People should have to pay extra to pay with cash,” he told Yahoo Finance.
“If there was a 1 per cent or 2 per cent surcharge on using cash, they’d go nuts, but that’s the economic cost of having cash. It’s not a sustainable business anymore.”
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