On this page
- Understanding the RBA’s Grand Bargain
- The Financial Pressure: Mapping the Absorption Gap
- Expert Strategies to Protect Your Margins
- The Road Ahead: A Governance Checklist
- Help is at hand
- About Halo Advisory
On March 31, 2026, the Reserve Bank of Australia (RBA) released its landmark Conclusions Paper on the Review of Merchant Card Payment Costs and Surcharging. The decision marks the most significant structural change to the Australian payments landscape in over twenty years. Effective October 1, 2026, the ability for businesses to apply a surcharge on eftpos, Mastercard, and Visa transactions will be removed.
For the modern business owner, this is not merely a compliance update. It is a fundamental shift in how the cost of doing business is calculated and recovered. In an environment already characterised by persistent inflation, rising input costs, and shifting consumer behaviour, this reform requires a proactive, expert-led strategy to protect margins and maintain liquidity.
Understanding the RBA’s Grand Bargain
The RBA’s decision is based on a trade-off designed to modernise the economy. The central bank acknowledged that while surcharging was originally intended to steer consumers toward cheaper payment methods (like cash or eftpos), it has become an inefficient tool in a near-cashless society.
To compensate businesses for the loss of surcharge revenue, the RBA is forcing a reduction in the wholesale costs of the system. This Grand Bargain rests on three pillars:
Drastic Reductions in Interchange Fee Caps
The interchange fee is the wholesale fee paid by your bank to the cardholder’s bank. It is the single largest component of your merchant service fee. The new caps, effective October 2026, are significantly lower:
· Domestic Credit Cards: The hard cap will be slashed from a benchmark of 0.50% down to a strict 0.30%.
· Domestic Debit: The cap drops from 0.20% to 0.16% (or a flat 8 cents).
· International Cards: For the first time, a cap of 1.00% will be introduced on foreign-issued cards (effective April 2027), providing relief to tourism and export businesses that previously faced uncapped fees of 2% to 3%.
The New Transparency Mandate
By late 2026, the RBA will require card networks and large banks to publish their actual fee data. This is a game changer for SMEs. Historically, large retailers negotiated strategic rates while small businesses were left with the sticker price. This new transparency allows you, and your advisors, to benchmark exactly how much margin your bank is making on your account.
Enhanced Competition
By removing the safety net of surcharging, the RBA expects merchants to become more price-sensitive when choosing a payment provider. The focus shifts from passing the cost to the customer to finding the most efficient provider.
The Financial Pressure: Mapping the Absorption Gap
While the RBA estimates that these reforms will reduce total merchant payment costs by approximately $910 million annually, individual businesses may still face a net loss if they currently rely heavily on surcharge revenue.
Consider a business with $1 million in card turnover. If they currently surcharge 1.5%, they recover $15,000 per year. If the RBA’s fee reductions lower their merchant costs from 1.5% to 0.8%, their new cost is $8,000. However, because they can no longer surcharge, they must now absorb that $8,000 into their profit and loss statement.
This Absorption Gap is the primary financial pressure point. In a high-interest-rate environment where every percentage point of margin counts, leaving this unmanaged is not an option.
Expert Strategies to Protect Your Margins
To counter the upcoming financial pressures, business owners must transition from a reactive surcharge model to a proactive optimisation model:
Strategic Pricing Method
The worst mistake a business can make is a sudden 1.5% price hike on October 1, 2026. This creates sticker shock and can damage customer loyalty.
The Approach: Conduct a card mix audit now to determine your current surcharge reliance. If you need to recover an extra 1% to stay profitable, implement incremental price adjustments of 0.2% every quarter starting today. By the time the ban arrives, your costs are already baked into your pricing, and the removal of the surcharge at checkout feels like a price drop to the consumer.
Mandatory Adoption of Least Cost Routing (LCR)
LCR is no longer a nice to have. It is a survival tool. It ensures that multi-network debit cards (which account for the majority of Australian card payments) are automatically sent through the cheapest network. This is usually eftpos.
The Goal: Lowering your base transaction costs before 2026 reduces the size of the gap you eventually have to absorb. If you haven’t enabled LCR on your terminals yet, you are effectively leaving money on the table every single day.
Transition to Interchange-Plus Merchant Contracts
Most small businesses are on Simple or Blended pricing (e.g., a flat 1.4% for all cards). These contracts are designed to protect the bank’s margins, not yours.
The Logic: Under a flat-rate plan, if the RBA lowers the interchange cost from 0.8% to 0.3%, your bank might keep the 0.5% saving as extra profit. On an Interchange-Plus contract, the wholesale saving flows directly to you. We recommend all clients review their merchant agreements to ensure they are positioned to capture the RBA’s intended savings.
Incentives vs. Penalties
While the law bans surcharges (penalties), it does not ban discounts (incentives).
The Opportunity: For high-value transactions or professional services, encourage clients to pay via OSKO, PayID, or direct bank transfer. Offering a Prompt Payment Discount or a Direct Debit Discount is a legally compliant way to steer customers toward zero-cost payment methods without falling foul of the RBA’s new rules.
Re-Evaluating Premium Payment Channels
The RBA’s current ban specifically targets the designated networks (eftpos, Visa, Mastercard). Certain three-party schemes (like American Express) and Buy Now, Pay Later (BNPL) services are subject to a separate review in mid-2026.
The Insight: Use this period to audit the ROI of these premium services. If a BNPL provider charges you 6% and you can no longer surcharge to recover it, does that service still drive enough new business to justify the hit to your margin?
The Road Ahead: A Governance Checklist
Success in the post-surcharge era will be defined by governance and data. Between now and October 2026, we recommend the following checklist for every SME owner:
- Merchant Audit: Request a Card Mix Report from your bank to see your split between Credit, Debit, and International cards.
- LCR Activation: Confirm with your provider that Least Cost Routing is active and optimised for your specific transaction sizes.
- Pricing Review: Model a Surcharge-Free P&L to see exactly how much your net profit will change if you absorb current fees.
- Contract Negotiation: Use the upcoming transparency mandates as leverage to shop around for a merchant provider that offers transparent, pass-through pricing.
The RBA’s reset is the largest change to Australian business operations since the introduction of the GST. While the transition will be challenging, those who treat it as a strategic opportunity rather than a compliance burden will emerge with more efficient, transparent, and competitive businesses.
Help is at hand
Is your business model ready for October 2026? As experts in SME advisory, we are currently assisting clients in auditing their overheads and restructuring their pricing. Contact us to schedule your 2026 Margin Protection Review.
About Halo Advisory
Halo Advisory is a business advisory firm specialising in insolvency, restructuring, and turnaround strategies. Led by Director Greg Bartels, the firm focuses on providing clear, actionable pathways for business owners and directors navigating financial distress and market volatility.
