The Reserve Bank has done some things to keep surcharges in check. It hasset benchmarks which limit certain fees charged by payment service providers,and banned shops from surcharging more than they pay to accept particular card types (although not all businesses have followed the rules).

Figuring out who actually takes the surcharge fee home at the end of the day is a complex task. Generally,most of the surcharge collected from a customer by a business goes to the customer’s bank or a platform such as Square,a little goes to the business’s bank,and an even smaller cut goes to a payment network:usually Visa or Mastercard. But Visa and Mastercard – which essentially own the digital equivalent of railroads in the payments process – can also charge banks and companies such as Square additional service,scheme and data processing fees,which those companies can pass on to businesses (which in turn pass them on to consumers).

We know the credit card processing industry in Australia is highly concentrated – the top four companies generatemore than 70 per cent of the industry’s revenue. Established card processors such as Visa and Mastercard dominate the market (in Australia and globally) and it’s pretty difficult for new companies to challenge them because of the high level of investment needed – along with other barriers – to start these businesses.

Apple has been disrupting some parts of the payment process,especially through its Apple Pay and Tap to Pay services,which allow users to make payments through their Apple devices,and turn iPhones into terminals that can accept card payments. But this mostly impacts banks which have traditionally been the providers of payment hardware,and Apple’s payment services still rely on Visa and Mastercard’s digital railroads.

While the presence of a few giant companies doesn’talwayslead to reduced competition,it can raise eyebrows when they’re raking in profits. Return on assets (a measure of profitability that compares a company’s net income with its total assets) for Visa and Mastercard,for example,are exceptional at about 16 per cent and 23 per cent respectively. By comparison,Australia’s biggest bank has had a return on assets hovering just under 1 per cent over the past few years.

Payment service providers should be rewarded for all the investment they’ve put in to build up these impressive payment systems. But now,their huge networks of users and infrastructure (which make it hard for competitors to break into the industry) mean we need to keep an eye on these payment processors and ensure competition keeps prices at bay.

As consumers,we can reduce the amount we pay in surcharges through choosing the domestic debit scheme,EFTPOS,which is generally less expensive compared to the Mastercard and Visa card systems – especially for larger transactions. If you have a debit card with an EFTPOS logo (which most should),you can insert or swipe the card when making a payment and choose the cheque or savings payment options at places that accept EFTPOS payments.

The Reserve Bank has tried to encourage businesses to take up “least-cost routing” which allows them to process electronic payments,even when a card is tapped,through the card network that costs them the least (usually EFTPOS). But banks and payments services aren’t too keen on promoting this to businesses (partly because it would cost banks more to update their payment devices,and because it would increase competitive pressures for payments services and likely reduce their – and the banks’ – profits). And business owners are often too busy to be shopping around for the best deals.

Last year,RBA governor Michele Bullock said there might need to be formal regulation to make sure payment service providers enable least-cost routing for businesses. So far,about 65 per cent of businesses have taken it up. But there probably needs to be a stronger push.

Millie Muroi is an economics reporter. Ross Gittins is on leave.

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