PayPal’s no surcharge rule begins as Australia’s card surcharge ban forces businesses to absorb or reprice costs

PayPal joins networks in banning checkout surcharges

From October 5, 2026, PayPal updated its Australian user agreements to prohibit merchants from adding a separate surcharge or any other fee for accepting PayPal. The change closes the gap left when eftpos, Visa and Mastercard introduced no surcharge rules that took effect on October 1, and follows similar moves by American Express and UnionPay earlier in the week.

Immediate impact on merchants and customers

For consumers the change is straightforward, at least in theory. A price displayed at the point of sale should be the price paid, with no extra line item added simply because a customer chooses a particular card network or PayPal as the payment method. For merchants the result is more complicated. Businesses still pay merchant service fees to acquirers and card networks, but they can no longer pass those fees on as a separate surcharge at checkout.

Small retailers and service providers that relied on surcharge income to offset processing costs suddenly face a choice. Some will absorb the fees inside existing margins, which squeezes profit and cash flow. Others are likely to raise headline prices to recover costs, a move that restores margin but removes the transparency the reform sought to deliver. A third option is to stop accepting particular card or PayPal payments, or to steer customers towards lower cost payment channels such as bank transfers, BPAY or direct debit.

Early signs: organisations refusing card payments

Within days of the card networks making their changes effective, a range of organisations publicly announced they would no longer accept some card payments rather than shoulder the processing cost. That approach reduces immediate merchant expenses but can complicate payment experiences for customers and business partners, especially for large recurring payments or tax and government fees that many households prefer to pay by card.

Where the costs will land

How the cost burden shifts will depend on several factors. Large retailers with scale and bargaining power are better positioned to negotiate lower merchant rates with acquirers, or to reprice systemically across product ranges. Smaller merchants have less negotiating leverage and narrower margins, making them more likely to either accept a drop in profit or to pass costs back to customers through general price increases or new service fees that are not explicitly linked to card acceptance.

Regulators have warned that businesses should not relabel a card surcharge as a platform, booking or service fee if the charge is effectively a pass through of payment processing costs. Authorities including the competition regulator will be monitoring the market for disguised or misleading fees and for failures to show the single minimum price that consumers must pay.

Bank and acquirer reactions

Some acquirers and banks have moved preemptively. A number of Australian banks trimmed published merchant rates in late September and early October, passing some of the savings back to business customers. Whether those cuts are enough to offset the lost surcharge revenue will depend on each merchant's card mix and average transaction size. The timing of merchant statements and the transparency of fee changes mean the true commercial effect will become clear only after October merchant statements are issued.

Why policymakers acted and what comes next

The Reserve Bank of Australia concluded earlier in 2026 that removing surcharges would improve price transparency and make the payments system more efficient and competitive. The bank removed an old restriction that had prevented card networks from banning surcharging, clearing the way for networks to adopt no surcharge rules.

Policymakers and consumer advocates argue the reforms reduce sticker shock at point of sale and simplify comparison shopping. Critics say the change effectively redistributes payment costs across all consumers and businesses, with the heaviest burden falling on merchants and ultimately on consumers through higher listed prices if businesses seek to recover lost revenue.

What businesses should do now

Merchants can take several practical steps to manage the transition. They should review recent merchant statements to understand the real cost of accepting different card types and PayPal. Updating pricing, invoicing and online checkouts to reflect single minimum prices is essential to stay compliant. Where possible, businesses can negotiate lower merchant rates, encourage lower cost payment methods with incentives, and check with their acquirer about operational changes to terminals and online platforms that affect surcharge functionality.

For consumers the immediate changes are likely to vary by sector and by merchant. In some cases customers will see lower final bills at checkout. In other cases businesses will fold acceptance costs into list prices or introduce broader service fees. Regulators have urged consumers who believe they were incorrectly charged a prohibited surcharge to seek refunds and to report instances of suspected non compliance.

Monitoring and measurement

The full economic effect of the surcharge ban will take months to appear in the data. Analysts will watch merchant margins, consumer prices in affected sectors, and the disclosures that card networks and large acquirers must publish in the coming months. The Reserve Bank and competition authorities have set disclosure and reporting timelines that will reveal whether merchants are being offered enough relief by lower merchant fees, or whether the policy has simply redistributed payment costs without delivering meaningful consumer benefit.

In the short term Australian businesses face a practical and financial adjustment that requires operational changes, careful bookkeeping and, in many cases, strategic decisions about pricing and payment acceptance. The outcome will shape the payments landscape and the retail economics for the next year or more.