Suncorp eyes new merchants with contactless debit offer

George Lekakis
18 April 2019
Suncorp will be the first regional bank to launch least cost routing on contactless debit transactions for its merchant customers across Australia.
The bank is only a matter of weeks away from offering the new service that will give retailers and other merchants the right to choose how contactless debit payments are processed.
All Australian banks that provide acquiring services to merchants have been directed by the Reserve Bank’s Payments System Board to reprogram payments terminals so that contactless transactions are directed to the lowest cost processing network available.
Before the Reserve Bank’s intervention, contactless transactions were automatically routed by the banks to either the Mastercard or Visa networks.
The reform, which opens the way for merchants to elect Eftpos Australia to process the transactions, potentially could deliver cost savings running into the hundreds of millions of dollars.
While ANZ and Westpac this month began marketing “merchant choice routing” to small businesses, Banking Day understands that Suncorp is preparing to launch a differentiated service that is likely to deliver deeper savings to its merchant customers.
Under the ANZ and Westpac routing offers, merchants are only able to direct all of their contactless payments to a single transaction processor of their choosing.
That means if a retailer nominates Eftpos as its preferred processor, all contactless payments will be routed to that company even for certain types of transactions that might otherwise be cheaper to process on the Mastercard platform.
Startup business bank Tyro, which has delivered least cost routing to 6000 merchants in the last year, has been directing contactless transactions below $20 to Mastercard’s platform and payments above that value to Eftpos.
Tyro’s rationale for alternating between the two networks is based on assessments that Mastercard is the cheapest processor of low value contactless payments while Eftpos is the least cost provider for transactions above $20.
By offering merchants the ability to alternate between processing providers, Tyro has been able to deliver a service that optimises cost savings for merchants.
While the ANZ and Westpac offers will also reduce costs for their merchants, the absence of a switching capability is likely to result in sub-optimal outcomes for business customers.
Suncorp appears to be implementing a business model akin to Tyro’s that allows merchants to switch between rival processing platforms according to which is cheapest.
This is likely to warm the hearts of payments officials within the Reserve Bank who have been agitating for the banks to develop systems that enable merchants to automatically route each contactless payment to the cheapest processor.
Suncorp’s early entry into least cost routing means it will steal a march on a raft of its business banking rivals including CBA, Bendigo and Bank of Queensland.
A successful early rollout across its fleet of merchant terminals could help Suncorp attract new business customers wanting to harvest the benefits of a more competitive processing service than those currently being offered by ANZ and Westpac.
Tyro’s experience since it launched least cost routing in March last year suggests that the SME sector stands to reap material cost savings as least cost routing is embedded in the payments system.
Tyro chief executive Robbie Cooke said some of his company’s merchant customers had reaped cost savings in the tens of thousands of dollars in the last year.
“Our merchants have now saved more than $2.7 million – some individually saving more than $50,000 – on merchant service fees,” he said.
“The savings have proven to be an attractive proposition for new and existing merchants with more than 6,000 merchants using the product, up from 4,200 in December.”