The Cash Comeback: A Strategic Response to the Surcharge Ban
The Reserve Bank of Australia’s decision to ban card surcharges from October 1, 2026, has triggered a wave of strategic adaptation among the nation’s small and medium-sized enterprises (SMEs). Denied the ability to directly pass on merchant fees to card-paying customers, businesses are pivoting to alternative tactics—most notably, the cash discount. This shift represents a fundamental change in how Australian businesses interact with their customers’ wallets.
The Legal Green Light for Cash Discounts
The Australian Competition and Consumer Commission (ACCC) has clarified that while card surcharges are prohibited, offering a discount to customers who pay with cash is perfectly legal. This distinction is crucial. A surcharge penalizes card users; a discount rewards cash users. The RBA itself has listed cash discount offers as a way for businesses to mitigate card costs.
This has led to a visible shift in consumer behavior. A Queensland supermarket owner reported a 30% surge in cash purchases after introducing a 2% discount for cash transactions. For many SMEs, encouraging cash is one of the few remaining levers to steer customers toward a cheaper payment method. As Professor Angel Zhong from RMIT University observed, “against thin margins and rising operating costs, offering a discount for cash is one of the few ways a small business can steer customers toward a cheaper payment method”.
The Psychology of Cash and the Cost of Acceptance
The rationale behind this strategy is rooted in economics. Cash is significantly cheaper for merchants to handle than card payments, which incur interchange fees, scheme fees, and acquirer margins. By offering a small discount, a business can save on these costs while also speeding up cash flow.
The ban has also prompted some businesses to take more drastic measures. Some cafes and retailers have begun to offer discounts for direct bank transfers or PayID payments, which bypass the card networks entirely. This approach aligns with a broader trend of account-to-account payments gaining traction in the Australian market.
The Challenges of a Cash-Centric Strategy
However, a full-scale return to cash is unlikely. Cash use in Australia has declined dramatically, from 69% of in-person payments in 2007 to around 19% in 2025. Many consumers no longer carry cash, and the inconvenience of doing so is a significant deterrent for a large portion of the population.
Furthermore, while cash discounts are a smart tactical move, they come with their own operational complexities, including the need for secure cash handling and banking. For many businesses, especially those in urban areas with a high volume of card transactions, the “cash discount” strategy may only provide partial relief.
The surcharge ban has forced SMEs to become more creative and strategic in managing their payment costs. The rise of cash discounts is a clear signal that businesses are fighting to protect their margins in a challenging economic environment. The long-term viability of this approach, however, depends on whether enough consumers are willing to change their payment habits.
