The Reserve Bank will ban surcharge fees for EFTPOS, Mastercard and Visa transactions because they don't help consumers make more efficient payment choices and cost them about $1.6 billion a year.
It will also squash the cap on interchange fees - paid by a business to a customer's card issuer when a transaction occurs - saving businesses about $910 million annually.
But business groups panned the changes, with hospitality venues expected to raise menu prices to include merchant fees they can no longer pass on.
Consumers wouldn't save any money when eating out and would be the biggest losers from the change, Australian Restaurant and Cafe Association chief executive Wes Lambert said.
The Australian Hotels Association said the only winner was the banks and questioned the point of the entire exercise, also predicting customers would not see any savings.
The Reserve Bank reported three in four surveyed consumers wanted payment costs incorporated into advertised prices, something Treasurer Jim Chalmers supported.
"Australians absolutely hate this idea there's a sneaky charge when you tap," he said.
"By getting interchange fees down, that will be a benefit to some of these small businesses that we hope they will pass on to customers.
"Fundamentally, this is about Australians knowing what they're paying."
Consumer group Choice said the changes were long overdue and would help household budgets.
"At a time when so many are doing it tough, the last thing consumers need is to be hit with a surprise surcharge at the checkout," Choice policy boss Morgan Campbell said.
Cuts to interchange fee caps and new transparency obligations were critical pairings to the surcharge ban, digital finance expert Angel Zhong said.
"Surcharge bans work best when tightly paired with fee regulation. Without this, cost pressures risk shifting rather than easing," the RMIT professor said.
"International experience indicates that reducing or banning surcharges may result in less generous card rewards programs, as costs are rebalanced elsewhere in the system."
The reform also signalled a growing recognition that digital payments function as essential economic infrastructure, not optional add‑ons, she said.
Consumer card transactions have exploded in the past 20 years, from about 25 per cent in 2007 to 75 per cent in 2022.
Surcharges steamed into the public eye in 2015 when Qantas, Jetstar and Virgin were charging more than $7 per transaction, far exceeding the cost of accepting a card payment.
Then-prime minister Malcolm Turnbull capped surcharges to the cost of accepting the payment, only for companies across all sectors to impose the fees.
"The surcharging framework, introduced more than two decades ago, is no longer achieving its intended purpose of steering consumers towards making more efficient payment choices," the RBA said in a statement.
"The increased prevalence of businesses surcharging all cards at the same rate, challenges with enforcing the current surcharging framework, and consumers using less cash have reduced the effectiveness of the surcharging regime."
The RBA will be able to make all the flagged changes under existing powers without legislation being passed.
Lowering the cap on interchange fees by businesses is predicted to benefit small firms the most, because they often pay higher fees.
Better transparency achieved by forcing card networks and large acquirers to publish what fees they are charging has also been recommended to foster competition between networks.
The surcharge removal will kick in on October 1.
An interchange cap on foreign cards and transparency measures for card networks will be implemented in April 2027.
18°C