Tyro report: The surcharging landscape of Australian businesses

Surcharging isn’t something all businesses have (or want) to do – it’s a choice.  

With the current cost-of-living crisis extending to businesses with higher utility, supply, and shipping bills, businesses are even more open to money-saving strategies; and surcharging is one of them. But since surcharging works by passing the cost of card acceptance onto customers, some businesses are hesitant to employ the strategy – concerned that it might deter customers from doing business with them. As a result, there is a varied response among Australian businesses to surcharging, with some opting to and some not.  

This report will explore how Australian businesses are surcharging, using data from Tyro’s customer base of more than 66,000 business customers. We’ve crunched the numbers to reveal the businesses that tend to jump onto the strategy, and those that stay on the diving block.  

In this report, you’ll learn about:

• The uptake of surcharging in different industries
• How transaction amounts can impact surcharging efforts
• How much each state is surcharging customers
• Barriers to adopting surcharging
• Advice on integrating surcharging into your business if you choose to
• How surcharging is made easy with Tyro’s Dynamic Surcharging

Hospitality is the largest industry for surcharging

Percentage change of hospitality merchants enabling surcharging month-on-month

In addition to surcharging being most popular in the hospitality sector, its uptake has increased nearly every month since 2021, with a sharp increase in recent months.

In light of growing concerns about an economic slowdown, this trend can be attributed to heightened awareness among businesses of potential economic challenges ahead, which is prompting them to explore additional methods for managing costs. Given the relatively receptive nature of hospitality customers towards surcharging, businesses in this industry have been quick to embrace surcharging as a viable strategy.

Surcharging in the retail sector

Percentage change of retail merchants enabling surcharging month-on-month

According to our transactional data, retail businesses have not adopted surcharging as much as the hospitality sector, however we can see a sharp rise in uptake recently. This peak is likely tied to the COVID-19 pandemic. As a result of lockdowns and economic impacts, businesses had to change how they did things to stay afloat, including starting to surcharge. Knowing the toll COVID-19 took on businesses, these changes were more widely accepted by consumers, ultimately helping businesses feel more comfortable surcharging their customers and confident that it wouldn’t result in seeing less of them.

Tap and Go transactions driving the surge

Surcharging’s uphill climb in both hospitality and retail businesses is likely a direct result of customers’ high use of tap-and-go transactions. According to the Reserve Bank of Australia (RBA)’s 2019 Consumer Payments Survey, four out of five in-person card payments are now contactless. The more customers using cards, the more card transactions fees there are to pay; and as a guaranteed way to workaround these fees, surcharging is mobilised by more businesses.

The biggest factor behind the concentration of contactless transactions would be the technological advancements that have occurred in the payments space. This includes new Point of Sale designs that make tapping the preferred payment method of choice, and digital wallets where customers load up their cards on their smart device. Major retailers like Woolworths and Coles have also paved the tap-and-go payment pathway, making consumers more accustomed to the practice so when they visit other businesses they turn to tapping.

Eateries surcharge more than other hospitality sub-industries

Cafes, restaurants, pubs, and bars have the highest uptake of surcharging, with accommodation and vineyards showing a far lower take up proportionately. This divide could come down to the perceived value of the surcharge.

A surcharge is always relative to the transaction size and that relativity sits around 1 to 3 per cent, depending on merchant service fee and on the transaction fees of the card used. 1 percent of $10 is only $0.10, but a quick miscalculation (that customers often do) can have them incorrectly believing that the surcharge is $1, which has a real impact on their perceived value of the fee.

In addition, a small surcharge like $0.10 doesn’t have much tangibility in value when considering what can be bought with $0.10; however, 1 percent of $1000 equals $10, which has a more tangible associated value that could make customers reluctant to let go of it. The higher the transaction size, the higher the surcharge and the higher potential for kick back from the customer. This is perhaps why accommodation, liquor stores, and vineyards, aren’t as big on surcharging, as transaction sizes are typically higher in these industries.

Businesses with higher average transactions surcharge less frequently

Our analysis shows that the highest average transaction size businesses surcharge less frequently than smaller average transaction businesses. This follows the same trend of hospitality sub-industries that charge more per transaction, surcharging less for fear of paying customers walking away because they don’t want to pay the fee.

To avoid negative customer sentiment, most of these businesses tend to integrate the cost of card acceptance into their advertised price so that they’re still recouping costs but aren’t giving their customers any bill shock at the point of payment.

These businesses tend to receive far less cash payments as the transaction sizes begin to outweigh the convenience of carrying around cash – making this alternative way to recover card transaction costs all the more important.

Businesses in New South Wales and Victoria surcharge more than other states and territories

Tasmania, Northern Territory, and South Australia have the lowest proportion of customers turning on surcharging, with New South Wales and Victoria showing the highest proportions.

We can reasonably assume that, over time, community-driven areas have demonstrated greater resistance to surcharging, possibly due to a prevailing sentiment of shielding their patrons from additional costs. This assumption is supported by data showing that larger cities tend to have a higher percentage of businesses implementing surcharges, while smaller cities generally exhibit a lower adoption rate.

Price pressures can be difficult to navigate in community-driven areas as business owners are often caught in the middle of showing support for their customers while ensuring their bottom line is kept in good shape.

Is surcharging right for your business?

Analysis of our data has unveiled significant variations in the adoption of surcharging across industries and geographical regions. So how do you know if surcharging is right for your business?

The ultimate decision lies in your hands, and there are several important factors that business owners should consider before adopting surcharging. Here are some examples:

• What is the prevalence of surcharging in your industry?
• Is surcharging is a common practice among your competitors?
• How might your customers respond to surcharging?
• What does a comprehensive cost analysis tell you about the impact of surcharging on your bottom line?

This information can help you determine if surcharging aligns with industry norms and customer expectations, assess the impacts of surcharging on customer satisfaction and loyalty, and ensure that the benefits gained from surcharging outweigh the associated costs.

In addition to considerations such as these, it’s crucial to familiarize yourself with the regulatory dos and dont’s of surcharging.

Here’s what you need to know:

• Your surcharge can’t exceed your cost of acceptance for payments. The “cost of acceptance” can be based on average transaction costs by card type and can also include EFTPOS machine rental, broken down by the amount of average transactions divided by the machine rental fee(s)
• You must display surcharging fees prominently, clearly and transparently
• Surcharging can be used to subsidise, rather than completely cover, card transaction costs
• You must review your cost of acceptance at least once a year

Surcharge with confidence with Tyro

If you’ve decided that surcharging is right for your business, then Tyro’s Dynamic Surcharging¹ can take the guesswork out of it.

It allows you to set your surcharging rates easily via the Tyro Portal which is then automatically applied to various customer cards. You will also be able to calculate EFTPOS machine rental into the surcharge and understand your surcharge amounts based on transaction size and card type.

Learn how to enable surcharging on your Tyro EFTPOS machine here

^{All figures as at 15/06/2023}

^{1 Dynamic Surcharging is available for Mastercard, Visa, eftpos, UnionPay, American Express, JCB, and Diners Club on CounterTop EFTPOS and Mobile EFTPOS machines, and excludes eCommerce transactions. By default, we do not include your EFTPOS machine rental costs into the calculation of your cost of acceptance, however you may choose to apply these costs into your calculation of your cost of acceptance via the Tyro Portal subject to the surcharging rules as set by the RBA and enforced by ACCC.}