Inform
5 min read
'Free' Is Not a Price. It Is a Warning
Sylvia Luchian
Founder & Head of Procurement Practice
If your payment processing is free, someone is paying for it. The RBA's March 2026 Conclusions Paper on merchant card payment costs has now confirmed, in two years of data, exactly who that is.
It is your customers. And, in ways that take a little longer to explain, it is also you.
The Reserve Bank of Australia found that some payment service providers have been incorporating non-payment services into their merchant service fees.1 Inventory management tools. Data analytics platforms. Customer loyalty features. Business reporting dashboards. These are software products. They cost money to build and money to maintain. When they appear inside a merchant service fee rather than as a separately priced line item, that cost does not disappear. It gets distributed invisibly across every transaction your customers process.
The RBA also found that some payment service providers have been marketing their payment services as free for merchants, with the full cost of payments automatically passed on to the consumer via surcharges.2 The business gets a terminal. The business gets the software. The customer gets the bill.
That model is not technically illegal. It is, however, a procurement failure. And from 1 October 2026, it is also about to become significantly harder to sustain.
Bundling, in commercial terms, means packaging multiple products or services into a single price. Bundling is not inherently wrong. Cable television packages, insurance policies, and software subscriptions all bundle services. The question is always whether the buyer knows what is in the bundle, whether they want all of it, and whether the price reflects the value they are actually receiving.
In payment processing, bundling has taken a specific and largely opaque form. The merchant service fee, the percentage or flat rate charged on every transaction, has in many cases incorporated services that have nothing to do with processing a payment.3 The merchant signed up for payment acceptance. They got payment acceptance, plus a point-of-sale system, plus inventory tracking, plus data reporting, all at a rate that looked competitive for payment processing alone but was in fact recovering the cost of an entire software stack.
The RBA described this explicitly in the Conclusions Paper: some PSPs bundle non-payment services into their merchant service fees, which allows merchants with these providers to surcharge the cost of receiving these non-payment services.4 The RBA noted that this practice is contrary to the intent of the surcharging framework which was designed to allow merchants to recover the cost of card acceptance, not the cost of unrelated software they may not have knowingly chosen.
That last phrase is important. May not have knowingly chosen. A merchant who signed a payment processing agreement without reading the full terms may be paying for and in some cases passing on to customers the cost of services they never specifically wanted, negotiated, or agreed to price separately.
Key Takeaway: If your merchant service fee includes non-payment services, you may be paying for software you did not specifically purchase and passing that cost to customers through surcharges you did not design.
The marketing is familiar. No monthly fees. No setup costs. Just a small percentage on every transaction. The terminal is free. The software is included.
The economics behind that offer are also familiar to anyone who has thought about it carefully. The provider is not a charity. The terminal has a manufacturing cost. The software has a development cost. The support team has a salary. Those costs go somewhere.
In the 'free' merchant services model, those costs go into the transaction rate. A payment processing rate that bundles a terminal, a loyalty platform, inventory management, and business analytics is not a payment processing rate. It is a total technology subscription expressed as a percentage of revenue. Whether that is good value for your business depends entirely on whether you are actually using all of those tools and whether you would pay for them individually if they were priced separately.
Most merchants are not making that assessment because they cannot. The RBA found that complex pricing models and the lack of consistent publicly available information on fees charged by acquirers makes it more difficult for merchants to compare pricing across providers.5 Merchants on single-rate or blended plans, the most common structure for small merchants, receive a single number on their monthly statement. What that number contains is not always visible, and in many cases, the components have never been disclosed.
Key Takeaway: A 'free' terminal paid for through a bundled transaction rate is a subscription you are running at revenue scale. The cost is real. The question is whether you know what you are subscribing to.
From 1 October 2026, surcharging on eftpos, Mastercard, and Visa transactions will end.6 The card networks are expected to impose no-surcharge rules shortly after the prohibition is lifted. For merchants currently using the 'free processing, all costs to the customer via surcharge' model, this is the end of that arrangement.
The cost that was previously passed to the customer through surcharging will need to go somewhere else. In most cases, it will either be absorbed as a business cost or built into product pricing. That means the bundle you never examined is about to become visible on your profit and loss statement.
This is the right moment to open the bundle and look at what is inside.
The RBA's new transparency requirements, effective from 30 October 2026, require large acquirers to publish their merchant service fees quarterly and provide merchants with itemised breakdowns on statements showing the relative costs of different transaction types.7 That data will, for the first time, give Australian merchants a basis for understanding what they are actually paying for and comparing it against the market.
Key Takeaway: When surcharging ends, the bundled cost sitting inside your merchant service fee becomes your cost. Open the bundle before October 2026. Know what is in it before the surcharge stops covering it.
The following questions are worth putting to your current payment provider in writing before October 2026. They do not require a lawyer or a financial advisor. They require a willingness to ask.
1. What is included in my merchant service fee?: Request a complete written breakdown of every service included in your current merchant service fee. If the response is a single percentage or flat rate with no component breakdown, that is your answer about transparency and your signal to push further.
2. Which of those services am I actively using?: Identify every non-payment service listed in the bundle. For each one, confirm whether anyone in your business is actively using it. If you are paying for a data analytics platform through your transaction rate and the login credentials have never been activated, you are funding a product that is delivering no value.
3. Am I already paying for any of these separately?: It is common to find businesses paying for inventory management or customer relationship tools through their merchant service fee while simultaneously paying a separate subscription for the same category of product. Duplicate payment for the same function is expensive. It is also avoidable.
4. What is the unbundled price for payment processing only?: Ask your provider explicitly: what would my transaction rate be for payment acceptance only, without any additional services bundled in? If the answer is not forthcoming, or the rate is not meaningfully different, that tells you something about the value attributable to the payment processing component.
5. What will my costs look like after October 2026?: Ask your provider directly how your merchant service fee will be structured once surcharging ends. Will the rate change? Will bundled services be repriced separately? Will the cost of non-payment services previously recovered through surcharging now appear as a separate line item? This question will clarify what you are actually committing to.
Key Takeaway: Put these five questions to your payment provider in writing before October 2026. Their responses will tell you more about your current arrangement than three years of monthly statements.
A well-negotiated payment processing agreement separates the components, prices them individually, and gives you the option to choose what you want and decline what you do not. It specifies interchange-plus or pass-through pricing so that regulatory changes, like the October 2026 interchange fee reductions, are visible on your statement rather than absorbed silently by the provider. And it prices any non-payment services separately, with their own cost, their own value proposition, and your deliberate agreement.
This is not a complex standard to meet. It is simply the standard that applies to any other supplier relationship where you know what you are buying, what it costs, and whether it is delivering value. Payment processing has been exempt from that standard for most Australian small businesses for long enough that the RBA felt compelled to regulate transparency into it.
The RBA's approach has been to build the conditions for competitive discipline through regulation because buyers were not creating it through their purchasing behaviour.8 The transparency requirements coming into force from October 2026 are an attempt to give merchants the information they need to behave as informed buyers. Whether that works depends on whether merchants use the information.
Opinions are like bellybuttons. Everyone has one about payment processing. The RBA's view, after two years and 170 submissions, is that the market was not working because buyers were not paying attention. That is a procurement diagnosis, not a payments one.
Key Takeaway: The 'free' payment processing model works by making costs invisible. Non-payment services bundled into the merchant service fee are paid for whether you know about them or not, and in many cases whether you use them or not. From October 2026, when surcharging ends and transparency requirements come into force, the bundle will become visible. The businesses that will benefit most from that visibility are the ones that open it now, before the regulatory change forces the conversation.
There is a version of this story where the 'free terminal' is a good deal. If you are running a retail business that genuinely uses the inventory management tools, the data analytics platform, and the customer loyalty features bundled into your merchant service fee, and the all-in rate is competitive against the alternatives, then the bundle is working for you. Keep it. But know what is in it.
The problem is not the bundle. It is the opacity. It is signing an agreement without knowing what you are agreeing to. It is paying for software through a transaction rate without knowing the software exists. It is passing those costs to customers through surcharges without knowing that is what you are doing.
From October 2026, that opacity has a closing date. The question is whether you use the time between now and then to get ahead of it.
If you would like help reviewing your current payment processing agreement and understanding what you are actually paying for, D1 Advisory's cost reduction and commercial contract services cover this category directly. A discovery call takes around 15 minutes. It will not include a presentation, a referral to a payment provider, or the phrase 'let us take you through our process.' It is a conversation. Book one through the D1 Advisory website.
Reserve Bank of Australia 2026a, 'Executive Summary', Review of Merchant Card Payment Costs and Surcharging — Conclusions Paper, Reserve Bank of Australia, Sydney, March 2026, viewed 20 April 2026, <https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/conclusions-paper/executive-summary.html>
Reserve Bank of Australia 2026b, 'Surcharging', Review of Merchant Card Payment Costs and Surcharging — Conclusions Paper, Reserve Bank of Australia, Sydney, March 2026, viewed 20 April 2026, <https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/conclusions-paper/surcharging.html>
Reserve Bank of Australia 2026c, 'Competition in Card Acquiring Services', Review of Merchant Card Payment Costs and Surcharging — Conclusions Paper, Reserve Bank of Australia, Sydney, March 2026, viewed 20 April 2026, <https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/conclusions-paper/competition-in-card-acquiring-services.html>
Reserve Bank of Australia 2026d, 'Transparency of Merchant Fees', Review of Merchant Card Payment Costs and Surcharging — Conclusions Paper, Reserve Bank of Australia, Sydney, March 2026, viewed 20 April 2026, <https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2026-03/conclusions-paper/transparency-of-wholesale-fees.html>
Reserve Bank of Australia 2025, 'Surcharging', Review of Merchant Card Payment Costs and Surcharging — Consultation Paper, Reserve Bank of Australia, Sydney, July 2025, viewed 20 April 2026, <https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2025-07/consultation-paper/surcharging.html>
There is a version of the RBA's March 2026 Conclusions Paper that should not exist. Not because the findings are wrong, they are well-evidenced and the reforms are sensible, but because the conditions they describe should have been corrected by the market years ago.
Inertia has a price. Most businesses just never see it on an invoice. It does not show up as a line item. It shows up as the gap between what you are paying for a service and what you could be paying if you had reviewed the arrangement in the past two years. Payment processing is one of the clearest examples of that gap in the Australian market right now, because the RBA has spent two years measuring it.
The Chief Procurement Officer role exists because buying well is hard. It requires commercial judgement, negotiation skill, market knowledge, and the discipline to build systems that last longer than a single contract cycle.
