Westpac taps on for debit reform

27 November 2017
Banking Day

Payments reformers at the Reserve Bank have scored another breakthrough in their campaign to open contactless debit payments to competition after a second major bank signalled it had begun work to accommodate eftpos Australia’s entry into the market.

Westpac confirmed to Banking Day on Friday that it was scoping the requirements for upgrading its national fleet of point-of-sale terminals to allow merchants to direct contactless debit card transactions through eftpos rather than high-fee systems owned by Visa and Mastercard.

While Westpac said it was committed to giving merchants more choices for routing contactless transactions, it warned that the software upgrades and technical changes required to link merchants to eftpos were “complex” and would require “some time” to complete.

In response to enquiries from Banking Day, a Westpac spokesperson said the bank was moving to offer eftpos as a processing option for contactless transactions.

“Now that eftpos can handle tap and pay, our teams are reviewing our capability to deliver this choice to our merchants in the future, and we are also starting to issue eftpos cards with this functionality,” the Westpac spokesperson said.

Westpac’s decision comes after ANZ began scoping work in October to upgrade its merchant terminals to add eftpos processing of contactless transactions. 

ANZ’s head of merchant services Adam Waites said last week that his bank was aiming to offer the eftpos contactless processing option to merchants in the second half of 2018.

Westpac’s decision also follows a warning from the Reserve Bank earlier this month that the regulator would use its statutory powers to force the banks to make eftpos routing available to merchants if they did not act “promptly” to offer the capability.

Australian banks have a financial incentive to delay the introduction of eftpos processing. 

An analysis of eftpos Australia’s entry into the contactless market by payments consultancy, McLean Roche, found that the major banks stand to lose up to A$558 million a year in fees if merchants were given the right to direct transactions away from expensive systems operated by Visa and Mastercard.

The RBA estimates that the average merchant service fee for transactions processed through the card schemes is 0.58 per cent of the value of debit payments compared to only 0.26 per cent for transactions routed through the eftpos system.

The moves by ANZ and Westpac are likely to exert pressure on Commonwealth Bank and NAB to clarify with the RBA’s request.

Neither of these banks is yet to give assurances that they intend to upgrade their merchant terminals to boost competition in the contactless market.

CBA has the most to lose from the RBA push because it is the largest debit card issuer in the Australian market.

Banks are conflicted on the issue of opening contactless transactions to competition.

If eftpos Australia’s lower fees trigger a significant shift in market share away from the Visa and Mastercard contactless processing systems, the major banks will feel the revenue impact through their card-issuing arms.

However, if CBA and NAB refuse to offer the cheaper eftpos service to merchants, they run the risk of losing business and institutional customers to ANZ and Westpac who will be giving their merchants access to the lower cost service.

Banking Day has been told by a Westpac source that the bank did not want to risk losing lucrative corporate and SME banking relationships even though the card issuing operation could potentially take a fee revenue hit of more than $100 million.