To increase or absorb… that is the question...

There’s a new debate brewing in small-business land, and it’s not about whether oat milk is superior to almond milk, or whether a $7 coffee is now simply the cost of being alive.

It’s about card surcharges.

With incoming changes set to stop businesses from passing card-payment surcharges directly on to customers, small-business owners are facing yet another delightful decision:

Do we increase prices for everyone, or absorb the cost ourselves?

Because apparently, in an economy where margins are already thinner than a café’s first slice of sourdough in the morning, there is a magical third option where businesses simply “wear it”.

Spoiler: for many small businesses, there isn’t.

Cash is free. Card is a choice.

I’ll say it: I am firmly in the camp that cash is free.

If a business gives you the option to pay cash, but you choose to use a card, phone, watch, ring, implant or whatever futuristic payment device we’re all tapping next… then surely it makes sense that the cost of that service sits with the person using it?

Card payments aren’t free for businesses. There are merchant fees, terminal costs, payment-provider fees and all the little charges that add up over hundreds—or thousands—of transactions every week.

A cash customer and a card customer might both buy the same $20 product, but the business does not receive the same amount from each sale.

And before anyone says, “It’s only a few cents,” I invite you to multiply those few cents across every coffee, meal, retail sale, booking and transaction in a month. Then take that figure from a business already dealing with rising wages, rent, insurance, produce, utilities, freight, packaging and, of course, good old-fashioned inflation.

It stops being “just a few cents” very quickly.

The proposed surcharge changes are designed to make card pricing simpler for customers, but they put small businesses in a tricky position: either absorb the cost and reduce already-tight margins, or increase the base price so every customer contributes—even those paying cash.

The alternative-milk argument

This whole debate takes me straight back to my Beached Barrel days.

We had a standard coffee price for long blacks and coffees with regular full-fat milk. But if you wanted almond, soy, oat, rice—or one of the endless other milk varieties currently living in the fridge—you paid a surcharge.

And wow, did that upset people.

Customers would tell us, “Other cafés don’t charge extra for alternative milk.”

My response was always pretty simple:

“I drink long blacks. Why should I have to pay for your choice of milk?”

Alternative milks could cost up to four times more than regular milk. That is not a tiny preference; it is a different input cost. So why should the business owner absorb that difference? And why should the long-black drinker, who uses no milk at all, pay more so someone else can have oat milk in their latte?

Here’s the kicker: many of those cafés with “no alternative milk surcharge” had a higher standard coffee price anyway. Their supposedly surcharge-free oat latte often worked out at exactly the same price—or more—than one of our standard coffees with the alternative-milk charge added.

They hadn’t removed the cost. They had simply spread it across everyone.

Same issue, different surcharge

That is exactly what may happen with card surcharges.

If businesses cannot charge a visible card surcharge, the cost does not disappear. It simply gets baked into the advertised price.

So the customer who pays cash, the customer who uses EFTPOS, the customer buying a single muffin, and the customer making a large credit-card purchase may all end up paying a little more to cover the processing costs created by card payments.

Is that fairer? Maybe it feels simpler at the counter.

But is it actually fair for the cash-paying customer? I’m not so sure.

If there is a genuine cash option available, I still struggle with the idea that the person choosing cash should subsidise the cost of someone else choosing the convenience, points, protections and functionality of card payments.

That said, I also completely understand the customer perspective. We have all felt the sting of rising prices. Many people are doing it tough, and another price increase—however small—can feel like one more kick in the guts.

The problem is, small business owners feel it too.

There is no easy answer

This is what makes the debate so frustrating. There is no villain here.

Consumers want transparent, affordable prices. Fair enough.

Small businesses want to stay viable, pay their staff, keep their doors open and make enough margin to justify the enormous effort it takes to run a business. Also fair enough.

But small businesses—particularly hospitality and retail—are not operating with big, cushy profit margins waiting to absorb another cost. Many are already making constant decisions about whether to increase a menu price by 50 cents, reduce portions, change suppliers, cut trading hours or take less income themselves.

So when people say, “Just absorb it,” what they are really saying is, “Take that money out of your margin.”

And for plenty of businesses, that margin barely exists.

We have spent the past 18 months watching prices creep, leap and occasionally launch themselves into orbit. Businesses have had to adjust pricing again and again—not because they are greedy, but because their costs keep changing.

Now, if card surcharge costs need to be incorporated into standard pricing, customers may see another increase. Even those who would prefer to pay cash.

And that feels like a lose-lose.

Where do you sit?

As both a business owner and a consumer, I feel the squeeze from both sides.

As a consumer, I want to know what something costs before I get to the final payment screen. I don’t love added fees. Nobody does.

As a business owner, I know that accepting card payments is not free—and expecting a small business to quietly absorb another cost is not a realistic solution.

Maybe the real question is not whether businesses should increase or absorb.

Maybe it is this: who should pay for the cost of convenience?

The person choosing the convenience? The business providing it? Or every customer through a higher standard price?

I know where I sit. If cash is available, I believe the cost of choosing card should sit with the card user.

But with the rules changing, many small businesses may have no choice but to build it into their prices—just like the cafés that include oat milk in the base coffee price.

The cost will still be there.

It just may be harder to see.

So, where do you sit: increase prices for everyone, or absorb the cost and hope the margins survive?