New research from Harvard University finds that:

"Cards charge interchange fees to merchants to fund consumer rewards.

"When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross subsidize high-reward credit card users who shop at the same merchant."

The research quantifies this regressive cross-subsidisation (in the USA).

"Because credit card use increases with income, this represents a $9.2 billion annual transfer from low- and middle-income households to higher-income households."

How significant is that?

The Harvard researchers say "these transfers are economically significant, comparable in size (but opposite in direction) to major government programs such as SNAP ($120bn), the Earned Income Tax Credit ($57bn), and unemployment insurance ($40bn)."

In Australia, 56 per cent of small and medium enterprises currently apply a surcharge to card payments, according to Fifth Quadrant's SME Sentiment Tracker research.

Less than 10 per cent of Aussie SMEs "expect a positive outcome" from the RBA's looming ban on card surcharges while 37 per cent expect a negative outcome.

The SME Tracker research finds that:

"Increasing general prices is the most common planned response, selected by 45% of current surchargers. A further 13% are considering minimum transaction values."

So, while all Aussie consumers face higher prices from 1st October, low income consumers (high debit and cash users) will not share in the benefits (like Qantas Frequent Flyer points).

The cost of card payments is not disappearing but will be hidden from public view.

"The RBA acknowledges that these costs may be reflected in overall business pricing rather than charged separately at the checkout," concludes the SME Tracker research.

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