RBA warns banks on tap-and-go payment costs

Clancy Yeates
November 20 2017
The Sydney Morning Herald
The Reserve Bank is warning banks they risk facing further regulation if they fail to address retailers’ concerns over the mounting cost to merchants from tap-and-go payments made on debit cards.
As consumers embrace contactless payments, the retail industry estimates its costs from processing purchases made on debit cards have risen by hundreds of millions of dollars.
That is because when Visa or Mastercard debit cards are used to make a contactless payment, the transaction is automatically sent through the card scheme system run by the international giants.
Before tap-and-go payments took off, most of these debit card transactions would have instead been through the lower-cost eftpos network.
The Reserve Bank wants to curb this cost by giving merchants the choice of having their contactless debit card payments sent through the eftpos system, which has recently been upgraded to handle contactless payments.
On Friday, the RBA’s powerful payments system board stepped up the pressure on banks significantly.
“It [the board] requested the bank staff to continue to engage with the payments industry on this issue, recognising that a prompt industry solution was preferable to regulation,” said the board, which is chaired by RBA governor Philip Lowe.
The retail industry estimates its costs from receiving debit card payments have risen by hundreds of millions of dollars. Photo: Glenn Hunt
Until recently, none of the banks offered merchants the option to have debit card payments sent through the cheaper eftpos network, but ANZ Bank pledged to make this change at a parliamentary hearing last month.
National Australia Bank said it was talking to a client about it, and Commonwealth Bank and Westpac did not commit to making the same change as ANZ.
The RBA also last week released figures showing merchants’ average fees for a Visa or MasterCard transaction was 0.58 per cent of the transaction, compared with 0.26 per cent for eftpos.
The escalation in the RBA’s language was welcomed by the Australian Retailers Association chief executive Russell Zimmerman, who said he had been “extremely concerned about this issue for some time,” he said.
“For the Reserve Bank to pull the stick out and hold it up there and say, we will regulate if you don’t fall into line, shows the seriousness of the problem,” Mr Zimmerman said.The ARA last month estimated the current system was adding more than $290 million in payment costs, and Mr Zimmerman said he now believed the cost was burden was “much higher” than this.
In response, banks and the international card schemes have pointed to the different rights consumers have depending on how their payment is processed.
Visa’s country manager for Australia, New Zealand and South Pacific, Stephen Karpin, pointed out that Visa card purchases came with features including charge-back, which covers consumers for goods that have been paid for but not supplied. Such a service can mean customers get their money back if a merchant goes bust.
“It’s important that a number of factors are considered in any assessment of network routing,” Mr Karpin said.
“These include the right for consumers to choose the financial products which best meet their needs, the importance of any cost comparisons being made on a like-for-like basis and the need to ensure innovation continues to be incentivised, for the benefit of consumers, merchants and the economy as a whole.”
The chief executives of the big four banks were questioned about the issue of contactless payment costs for debit cards at last month’s banking inquiry, and they characterised the issue as one of consumer choice, saying customers chose to use Visa and Mastercard debit schemes.
The RBA’s payment systems also noted recent bank moves to stop charging ATM fees to customers of other banks. It pointed out the declining use of ATMs, and said there “may be scope for consolidation or fleet rationalisation that results in a more efficient and sustainable ATM industry while still maintaining broad access to ATMs”.