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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.

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  • 1
    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. Jan 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 at 13:08
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    An alternative practice at many US businesses is a minimum amount for using a credit card.
    – Barmar
    Jan 21 at 18:25
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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 at 21:38
  • 1
    @dandavis - Do you have a source for that?
    – Bobson
    Jan 24 at 13:51
45

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.

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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 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 at 18:41
  • 3
    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 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). Jan 21 at 20:55
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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. Jan 22 at 0:03
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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

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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. Jan 23 at 5:33
  • @AbraCadaver Looking at the government advice here: accc.gov.au/business/pricing-surcharging/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 at 22:13
8

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.

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    Its actually illegal in the UK to charge to use a Debit/Credit card now.
    – GamerGypps
    Jan 22 at 9:23
  • 1
    So you were gouging. Nice.
    – Bohemian
    Jan 22 at 19:54
  • 4
    @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'? Jan 22 at 20:57
  • 1
    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 Jan 22 at 23:21
  • 1
    @MartinSmith Particularly, though not so relevant now, when it's a £5 minimum in the pub and a pint costs £4.50. Jan 23 at 22:33
1

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.

1
  • 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 at 19:53
-1

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!

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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 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 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 at 17:07
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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 at 20:05
  • 6
    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 at 22:16

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