Tyro report: The surcharging landscape of Australian businesses

With the current cost of living crisis impacting businesses with higher utility, supply, and shipping bills, companies are becoming increasingly open to money saving strategies like surcharging.  

On the flipside, because surcharging passes the cost of card acceptance onto customers, some businesses are understandably hesitant to use this cost-saving strategy – concerned it might deter customers from doing business with them.  

As a result, there is a varied response among Australian businesses on surcharging, with some choosing to and some not.

In this report we’ll look at 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 so to speak. 

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

On top of surcharging being most popular in the hospitality sector, its uptake has increased most months since June 2022.

With growing concerns about an economic slowdown, it seems natural for businesses to explore other ways to manage and save on costs.  Given how well surcharging has been received among hospitality customers, this industry has led the way in embracing it 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 could be linked to cost-of-living pressures, such as rising rents and utilities, which are affecting small businesses.

Tap and Go transactions driving the surge

Surcharging’s climb in both hospitality and retail is likely due to the high frequency 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 are using cards, the more card transactions fees there are to pay; and as a guaranteed way to work around these fees, surcharging is now being taken up by more businesses. 

The biggest factor in the growth of contactless transactions is technological advancements that have occurred in the payments space.  

This includes new Point of Sale designs that make tapping the preferred payment method, and digital wallets where customers can easily 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. 

Cafes, pubs, restaurants and bars 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 in comparison. This divide could come down to the perceived value of the surcharge.

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

A small surcharge like $0.10 doesn’t seem to offer much tangible value when considering what can be bought for that amount. However, 1% of $1000 equates to $10, a figure that offers a significantly higher perceived value. The higher the transaction size, the higher the surcharge and the greater potential for kick back from customers. 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.  

To avoid negative customer sentiment, these higher average transaction businesses might tend to integrate the cost of card acceptance into their advertised price so that they’re still able to recoup costs, but without the risk of bill shock at the point of payment. 

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

Tasmania and the Northern Territory 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 shown greater resistance to surcharging, possibly due to a prevailing sentiment of businesses shielding their patrons from additional costs. This assumption is supported by data showing that larger cities tend to have a higher percentage of businesses surcharging, while smaller cities generally have a lower take up 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 decent shape. 

Is surcharging right for your business?

Analysis of our data has uncovered significant variations in the take up 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 considering surcharging. Here are some examples:

• What is the uptake of surcharging in your industry?
• Is surcharging common 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 understand if surcharging aligns with industry norms and customer expectations, assess the impact of surcharging on customer satisfaction and loyalty, and ensure that the benefits from surcharging outweigh the associated costs. 

On top of these considerations, it’s important to familiarise 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 CONFIDENTLY 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. 

Dynamic Surcharging allows you to set your surcharge rates easily via the Tyro Portal. Those rates are then automatically applied based on card type.

Learn how to enable surcharging on your Tyro EFTPOS machine

^{All figures as at 15/06/2024} 

^{1 Dynamic Surcharging is available for Mastercard, Visa, eftpos, UnionPay, American Express, JCB, and Diners Club transactions. The Dynamic Surcharging feature is not available for eCommerce transactions or to customers on No Cost EFTPOS pricing. 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 and, in relation to American Express transactions, the American Express Merchant Operating Guide (found at http://www.americanexpress.com.au/merchantopguide).}