Feb 5, 2020
James Eyers
AFR
Share Big banks and major credit card companies face the loss of half a billion dollars in payment charges to retailers for “tap and go” transactions after the Reserve Bank said it might force them to use the cheaper Eftpos network.
The RBA is concerned retailers are paying too much for the increasingly popular payment service, and wants banks to direct them through the cheaper Eftpos network instead of the system operated by the global credit card companies Mastercard and Visa.
The central bank could consider mandating “least-cost routing” as part of its comprehensive review of payments regulation taking place this year. This could save the retailing industry around half a billion dollars each year, improving margins for retailers and reducing prices for customers.
The RBA’s head of payments policy, Tony Richards, told The Australian Financial Review he is frustrated banks are not proactively providing merchant customers with the cheaper payments option. He has also warned banks against hitting customers with extra fees for using Eftpos.
When a customer inserts a card into a payments terminal, they get an option to send it via debit or credit “rails”. But with ‘tap and go’ payments, the route is pre-programmed on the card chip by a bank. Many banks direct it through the higher-cost, international card schemes – which could be due to opaque arrangements between banks and card companies, which the RBA is also investigating.
Advertisement “One of the possible reasons for the major banks dragging their feet on least-cost routing is that they each have very extensive relationships with the large international schemes – we will be exploring this in the review,” Dr Richards said.
“What is it about this market that banks have the opportunity to send payments through whichever rails are cheapest – Eftpos in most cases – but are not choosing to do it? Banks could be doing least-cost routing in the background for their merchant customers.
Retailers unite to fight for lower ‘tap and go’ card fees
“It would be simple for them to go to all smaller merchants and tell them they offer the ability to send payments on their behalf through cheaper rails. But no major bank is doing that – none of them are actively going to their smaller customers saying, ‘Here is an opportunity to reduce your payments costs’.”
Tyro, an alternative terminal provider that recently listed on the ASX, has provided its merchant customers the option to route payments via Eftpossince 2018, following a recommendation from the House of Representatives standing committee on economics in 2017.
Tyro CEO Robbie Cooke said 8500 of its merchants, from its 29,000 total customer base, had chosen least-cost routing. On average, they were saving 8 per cent on merchant service fee, representing $8 million in total savings.
“It’s a great outcome for merchants,” Mr Cooke said. “For us, it made sense – we are about our merchants achieving the most economical transaction cost, so implementing LCR is true to what we stand for as a business.”
Mandating considered
The Reserve Bank considered mandating least-cost routing in 2018 to force more banks to give merchants the Eftpos option, but decided this wasn’t required. But Dr Richards said: “I expect that one of the options in the review will be to consider whether all merchants must be offered least-cost routing.”
The RBA’s broad review of payments regulation this year will also examine the use of payments card in digital smartphone wallets. There are concerns in the market some banks are sending payments made via Apple Pay or Google Pay to the card schemes even if least-cost routing is turned on for the physical card.
Crimping profits
Last week, the Financial Review reported concerns raised by the ‘Fairer Merchant Fees Alliance’ – which comprises the Australian Retailers Association, the Council of Small Business Australia, the Masters Grocers Association and the Australian Convenience and Petroleum Marketers Association – that fees for ‘tap and go’ routed through Visa and Mastercard could be four times higher than Eftpos.
The group estimated this cost was between $350 million and $550 million a year, which was either passed on to consumers in surcharges or higher prices, or crimped retailers profits.
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