RBA shakes up card payments: What it means for Visa, Mastercard, and merchants

On July 15, the Reserve Bank of Australia (RBA) released a landmark consultation paper proposing sweeping changes to Australia’s card payments system. The reforms go well beyond prior government initiatives and aim to reshape how consumers, businesses and payment networks interact.

The proposals include a ban on card payment surcharges, a cap on interchange fees (including for international cards) and a new requirement for card networks and acquirers to publish all fees charged to merchants. While these changes may appear to pose a challenge for global card networks like Visa and Mastercard, the reality is more nuanced. These networks have long anticipated such regulatory shifts and have already diversified their revenue base. The proposed reforms may compress certain economics, but we believe the long-term outlook for Visa and Mastercard remains strong.

Every time a consumer taps a debit or credit card, a complex value chain is activated:

1. The merchant pays a merchant service fee to their payment provider (the “acquirer”).
2. The acquirer passes a portion of that fee to the card network (Visa, Mastercard) as a network or processing fee.
3. A larger share flows through to the issuing bank (e.g. CBA, NAB) in the form of an interchange fee.
4. The issuing bank uses the interchange fee to fund cardholder rewards, fraud protection and credit provisioning.

In Australia, debit card interchange is typically capped at 0.2% of the transaction value, while credit card interchange averages around 0.8%.

To offset these fees, many merchants apply a surcharge when a customer pays with a card, especially for high cost credit products. These surcharges have become increasingly common, ranging from small cafés to large service providers.

What the RBA Is Proposing and Why It Matters

The RBA aims to simplify the system and reduce payment costs for both consumers and businesses. Key components of the proposed changes include:

• Ban on card surcharges across EFTPOS, Visa and Mastercard transactions removing an estimated $1.2 billion in annual consumer charges.
• Lower caps on interchange fees, including the introduction of limits on fees charged for foreign-issued cards potentially saving merchants a further $1.2 billion.
• Mandatory transparency on fees, requiring card schemes and large acquirers to publish their pricing.

The RBA’s rationale is that surcharging no longer incentivises more efficient consumer behaviour, especially as cash usage has declined. 

Visa and Mastercard Have Already Pre-empted This Shift

While some may view these changes as a direct threat to the card networks, it is important to recognise two key points:

1. Visa and Mastercard do not earn interchange revenue that goes to the issuing banks. (However, indirectly, they are exposed to the economics of the transaction).
2. They have strategically repositioned themselves over the past decade in anticipation of global regulatory intervention.

In many ways, Australia is simply catching up to regulatory frameworks already in place across Europe. The European Union capped debit and credit card interchange rates in 2015 (at 0.2% and 0.3% respectively) and similar regulatory pressure is building in markets like Canada and the UK.

Visa and Mastercard have responded globally by shifting their business models toward unregulated, higher-value services including:

• Network fees: Charged per transaction to acquiring banks, based on volume and geography. These fees have proven sticky, durable and are not subject to regulatory caps.
• Value-added services (VAS): This is the fastest-growing part of both companies’ revenue mix and includes:
• Tokenisation and fraud protection
• Authentication and identity verification
• Data analytics and loyalty platforms
• Instalment payment facilitation
• Real-time payment enablement (Visa Direct, Mastercard Send)

As of FY2024, value-added services now make up over 30% of Visa’s net revenue (Visa Investor Day 2025) and 38% of Mastercard’s net revenue (Mastercard 10K 2024), growing at a high teens compound annual growth rate (CAGR). These services are often bundled with core payment rails and generate much higher margins than processing.

By broadening their role from “card networks” to comprehensive transaction infrastructure providers, both companies have decoupled a significant portion of their growth from interchange economics.

Navigating a Post-Surcharge, Post-Interchange World

If the RBA’s proposals are implemented, we expect the following dynamics:

• Merchant impact: Merchants will no longer be able to pass on card costs via surcharges, increasing pressure to minimise fees. This is likely to intensify competition among acquirers and drive demand for bundled, transparent services, a space where Visa and Mastercard are already deeply embedded.
• Issuer response: With reduced interchange income, banks may cut back on rewards or seek new sources of value from the networks. Visa and Mastercard can step in to offer loyalty as a service, cobranded offers and embedded lending platforms.
• Consumer behaviour: While rewards may be less generous, consumers are unlikely to change card usage behaviour meaningfully. The convenience and embedded nature of card payments, especially for online and contactless transactions remains a powerful moat.
• Visa and Mastercard strategy: We expect both networks to increase their focus on monetising acceptance, using their scale and brand trust to drive value for merchants via security, analytics and customer insights rather than through traditional pricing of card rails.

Conclusion

While the RBA’s proposals mark a significant structural shift in Australia’s payments landscape, we view the impact on Visa and Mastercard as manageable and largely pre-empted. These are not static businesses tied to a single line of revenue; they are adaptive, global platforms with decades of experience navigating regulatory reform.

Interchange caps and surcharge bans may tighten one lever, but they open the door to greater transparency, increased service innovation and new business models that Visa and Mastercard are uniquely positioned to lead.

We continue to view both companies as resilient compounders with high returns on capital, durable moats and strong secular tailwinds as the world moves further into digital payments infrastructure. We expect to hold these companies in our portfolio for the long term.