Banks are secretly raking in millions with “tap-and-go” contactless credit or debit card purchases, with a growing number of companies charging directly to customers as surcharges.
However, a financial expert said there is a way to avoid this pitfall as he called on banks to end the “disgraceful” practice of processing tap-and-go payments as expensive international credit card transactions.
“I think tap and go has a lot to answer for,” Tim Wildash, CEO of Next Payments, told Seven News in April.
“Obviously it’s very useful, but it’s also very expensive, every time you tap and go you’re completely open to being used the way the banks want you to be used and that’s through the schemes so they get more can earn money.’
When a customer uses tap-and-go, banks charge a fee ranging from 1.1% to 2 percent of the purchase price instead of a maximum of 0.5% for EFTPOS.
Banks are charging exorbitant fees for the convenience of using tap-and-go contactless cards to make purchases
Manny Notaras, the owner of CAPHs Cafe Bar and Restaurant in Canberra, said while the costs of tap-and-go were sometimes absorbed by businesses or factored into higher prices, more outlets passed them on directly as surcharges.
“I know some other companies are looking at customers or have started charging customers, they’re being looked at really dirty, some are being taken advantage of,” he said.
Costs are going up, inflation is going up. For my part, I know I have $2,000 out of my pocket every month.”
Mr Wildash advised consumers to check how much they would have to pay to use their own money and also gave some tips to avoid getting stung.
“I think consumers will be surprised when they find out how much fees they pay through the payment system,” he said.
“So the best way is cash, there is no surcharge on cash.
Tim Wildash, CEO of Next Payments, said consumers would be surprised to learn how much using tap-and-go costs them
Otherwise, he said people should check that they have the EFTPOS logo on the card they are using and start using that instead of tap and go.
“If they do, they can really start demanding that it be the cheapest route,” he said.
“They have to insert the card and choose ‘save’ and that gives them the opportunity to save 1.9% every time.”
Matthew Addison, chairman of the Council of Small Business, said the solution for the banks was to help businesses by installing payment machines that automatically applied a least expensive routing system to make buying as cheap as possible.
“The banks really need to get behind this and make it simple for companies to take over and simple to understand,” Mr Addison said.
“If we can keep the cost of doing business low, companies won’t have to raise their prices.”
“We are in a very difficult economic environment for small businesses.
“Costs are rising and here’s a no cost to government, no cost to budget way to enforce a system that saves costs for small businesses.”
Many shoppers may not be aware that the convenience of tap-and-go means costs are passed on through surcharges or price increases
However, the banks have been slow to distribute lowest-cost routing systems to businesses, with some of the big four lagging particularly behind.
While both the Reserve Bank and Federal Treasurer Jim Chalmers have called for more widespread adoption of the system, Wildash accused the banks of dragging.
“The RBA simply cannot get the traction it needs from the big banks,” he said.
‘Everyone wants it. The banks have some old terminals out there, they don’t want to upgrade those because they’ll make money off the system as it is and they’ll make less money on the cheapest routing.
“They have to be able to designate a time and a number of penalties. A lot of money is involved.’
The Commonwealth Bank and NAB have said they are committed to upgrading their payment terminals to make routing universally available at the lowest cost, while NAB said they are taking an “opt-in” approach.
Mr Wildash said the federal government must take action.
“Look at other countries, the Scandinavian countries, the government, the banks, the payment regulator, they get together and they sort it out and they go beyond and take care of their consumers,” he said.
“But here no one wants to agree, no one wants to help.”
‘Why every Australian should pay CASH’: Mum reveals little-known hidden costs of using a bank card: ‘Use it or lose it’
A mother of three has explained why every Australian should start paying with cash instead of cards – showing that tapping for payments means taking money from the community and giving it to banks.
In a Facebook post that has gone viral, Brisbane woman Fiona Edmunds showed that physical money retains its value no matter how often it is used.
However when you use a bank card part of the money is invariably eaten up by fees, which the retailers have to pay.
“I have a $50 bill in my pocket and I’m going to a restaurant and paying for dinner with it,” Ms Edmunds said in the post that more than 19,000 people have shared.
The restaurant owner then uses the bill to pay for his laundry. The launderette then uses the bill to pay for the hairdresser,’ she continued.
“After unlimited payments, it still remains a $50 value that has fulfilled its purpose for everyone who has used it for payment.”
“BUT if I come to a restaurant and pay digitally by card, the bank charges for my payment to the merchant can add up to 3 percent or $1.50.”
A mother of three from Brisbane shared an elegantly simple explanation of why cash is superior to paying by card
Ms Edmunds said a similar percentage would be imposed on any other transaction with that original $50 if the holder pays via tap-and-go.
‘Payments by the owner of the launderette, the hairdresser and so on. So after 30 transactions, the first $50 will only be $5 and the remaining $45 has become the bank’s property.’
While this is a simplified example and fees vary wildly between banks, the principal amount is good.
With each subsequent purchase, banks and credit card companies take a small portion of the original $50 until, with enough transactions, it eventually becomes theirs.
“Use it or lose it folks…cash is king,” Mrs. Edmunds said.
According to the Reserve Bank of Australia, the fees companies pay banks or credit card companies to use their payment services – known as merchant fees – have fallen on average in recent years.
“However, consumers are paying more with cards than ever before, increasing the overall cost of payment for merchants,” the RBA said.
“Smaller merchants also face significantly higher card payment costs per transaction than larger merchants,” the central bank also noted.
This means that your local cafe pays more of their income in fees than a large retail chain that makes a lot more money and can get fees.
Companies are allowed to pass on fees to customers to cover trading costs, but the amount cannot exceed the fee amount.
Brisbane woman Fiona Edmunds says every Australian should start paying in cash