The 2 per cent cash discount is the only lever merchants have left

A Far North Queensland supermarket is handing back more than it pays to accept cards. The Reserve Bank left the door open for exactly this, and thinks it is a bad idea.

Since 1 October, Australian businesses have not been able to add a surcharge to a card payment. The cost of accepting the card did not go anywhere. What has changed is that the customer can no longer see it, which leaves a merchant two options: absorb it, or build it into the shelf price where it applies to everyone.

Forrest Beach Supermarket, in Far North Queensland, found a third. The store now offers a 2 per cent discount to customers paying cash, and director Josh Williams says cash purchases have risen 30 per cent since the ban took effect. The supermarket has handed back more than $385 to cash-paying customers so far.

This is permitted, and deliberately so. In the conclusions paper that produced the reform, the Reserve Bank of Australia (RBA) stated that merchants retain the ability to offer a discount for their preferred payment method, which allows them to steer customers toward whatever they consider cheaper to accept. A charge added to card payers is out. A discount offered to cash payers is in, and renaming a card charge a service fee does not move it across the line.

The arithmetic is worth sitting with. Forrest Beach pays an average of about 1.5 per cent to accept a card. The discount it offers for cash is 2 per cent. Every cash sale therefore costs the business a sliver of margin it would have kept had the customer simply tapped. Williams has also lifted shelf prices to compensate for the ban, and says of the squeeze that "the net margins are in the single digits".

He is not alone. Hazelbrae Hazelnuts in Tasmania has said its cash discount will also exceed what it pays in card fees. Chappy's Place, a cafe in Kadina in South Australia, has gone to 5 per cent. At 2 Chefs Cafe in Thornton, in the New South Wales Hunter region, the share of transactions paid in cash reportedly more than doubled in the first week of the ban, from 12 per cent to 25 per cent, without any discount on offer.

The RBA's view is that steering customers to cash is unlikely to help. Its position, set out in the same paper, is that recent studies suggest cash is no longer clearly cheaper for merchants to accept than debit or credit once handling and back-office costs are counted. That was part of the reasoning for removing surcharging in the first place: if cash is not actually cheaper, a surcharge on cards is not sending an accurate price signal.

Cash use has fallen a long way regardless. The RBA puts cash at around 70 per cent of consumer payments by number in 2007 and 15 per cent in 2025. Williams is cautious about reading much into his own figures, noting the sample is one store over a few weeks and the lift may not hold.

Discounting cash by more than your card acceptance costs is a protest, and a reasonable one, but it is not a margin strategy. If you want to try it, price the discount below your effective card rate and know what you are buying: slower reconciliation, a float to manage, a bank run to make and counterfeit risk. The better return is duller. Go back to your acquirer with the published rate comparisons now circulating and renegotiate, because that saving arrives on every sale and costs you nothing in handling. Expect cash discounting to stay a visible minority sport through summer, and expect the RBA to be asked about it long before it moves on the banks.