'Doesn't pass the pub test': Hidden cost of RBA's decision to scrap card surcharges

The Reserve Bank of Australia has announced an end to surcharges on bank card payments, scrapping fees for millions of Aussies who don't use cash.

Card surcharges will be scrapped on October 1 and businesses will have to absorb the cost they used to pass on to customers.

But the change could end up costing us more at cafes, restaurants and corner shops.

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That's because many businesses will hike prices in response to the surcharge changes according Fei Gao, a lecturer at the University of Sydney's Business School.

"The surcharge is going to be embedded into and absorbed by the price of the goods," Gao told nine.com.au.

Hospitality and small businesses like cafes, restaurants and convenience stores will be hit hardest by card surcharges come October.

Gao predicts some will hike prices early to try to manage new costs.

"They want to adapt to the change sooner than others, so they will start to incorporate it earlier," Gao said.

Regardless of when businesses increase prices, one thing remains the same: Aussies who still pay with cash will be worse off.

That's because price hikes will apply to all customers, not just those who pay by card.

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Australian Hotels Association chief executive Stephen Ferguson told nine.com.au Aussies who have remained loyal to cash are getting the short end of the stick.

He said the RBA's decision "doesn't pass the pub test" and will only hurt consumers and small business.

"The costs that we have to pass on to consumers are too high," he told nine.com.au.

"There needs to be proper safeguards to ensure that any benefit flows back through to small business, so that benefits can be passed to savings can be passed to consumers."

As well as scrapping card surcharges, the RBA will also reduce interchange caps for domestic card transactions on October 1 to lower businesses' costs.

But Ferguson's worried small businesses will never actually see the benefits.

"What we saw in Canada when interchange was lowered was that the big payment providers simply pocketed that that money themselves," he said.

"There needs to be proper safeguards to ensure that any benefit flows back through to small business, so that benefits and savings can be passed to consumers."

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Though the RBA's decision hasn't been popular with small businesses, Gao said there's a silver lining for consumers.

Having card surcharges baked into the price of goods and services will make it easier for Aussies who pay by card to know what each purchase is going to cost them.

"It's not entirely a bad thing to customers, in terms of transparency."

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