ANZ Banking Group is already moving to upgrade its merchant terminals to accommodate contactless debit card transactions through the eftpos network, but has indicated that small and medium size merchants may have to wait until the second half of 2018 before the service will be available.The bank's head of merchant services Adam Waites told Banking Day that work began last month to assess requirements to upgrade ANZ's fleet of more than 250,000 terminals spread across the country.ANZ is the first bank to signal it is progressing the rollout of eftpos contactless payments after the Reserve Bank warned last week that it would force major banks to open the booming contactless payments market to competition."We are working on technical solutions to facilitate routing of eftpos transactions for contactless payments," Waites said."We are working through a number of technical challenges and can't be certain when the service will be available but it is not likely to be in the market before the second half of 2018."The work requires considerable investment and development for the bank."In order for us to do this we need to upgrade the software on all our terminals."Under current industry practices contactless debit transactions are automatically routed through platforms owned by Visa and Mastercard.The practice is now viewed as controversial by the RBA because the major banks are collecting higher fees from merchants than challenger networks, such as eftpos, plan to charge.Data published this month by the RBA shows that the average merchant service fee is charged at a rate of 0.58 per cent when debit transactions are processed through scheme card networks.However, merchants only pay an average rate of 0.26 per cent on swiped debit card transactions handled through eftpos.Independent modelling of the RBA data by financial services consultancy, McLean Roche, shows that banks stand to lose up to A$558 million in fee revenue in the next year if they stopped channelling contactless transactions automatically through the expensive Visa and Mastercard systems.ANZ is the first bank to announce it will comply with the Reserve Bank's request, but the country's largest financial institutions - CBA and Westpac - appear to have dug in for a fight.While movement on the issue at ANZ will no doubt please payments executives at the Reserve Bank, they might be a tad concerned that the Melbourne-based bank will take up to 12 months to reconfigure its merchant terminals. Waite's comments are potentially significant in the cat and mouse game being played out between the RBA and the other majors.If the RBA concludes that it may take other major banks the same amount of time or longer to upgrade their systems, the regulator might decide to use its statutory powers earlier than expected rather than engage in drawn-out negotiations.As the largest debit card issuers in Australia, CBA and Westpac are expected to take the biggest revenue hits when eftpos enters the contactless market.In response to questions put by Banking Day last week, CBA declined to confirm it would upgrade its terminals to give merchants the