Mastercard Australia has slashed the interchange fee it charges on over-the-counter debit transactions under a new pricing schedule published on its website.The decision will help the global card scheme to counter a competitive threat from Eftpos Australia as major banks such as ANZ and Westpac give retailers the right to choose how contactless payments are processed.Mastercard has dramatically lowered the interchange fee on contactless debit transactions to 5.5 cents from around 12 cents.That slightly undercuts Eftpos' standard interchange rate of six cents per transaction.While the interchange fee is only a small part of the total cost borne by merchants for accepting debit card payments, the reduction should make Mastercard more competitive against Eftpos as the two companies prepare to go to war for market share in contactless processing.Mastercard has not indicated whether it will also cut scheme fees it charges merchants.Reserve Bank data shows that the average total merchant service fee levied by Mastercard and Visa was around 0.56 per cent on debit transactions in the December quarter.The RBA measured the average cost of debit transactions processed by Eftpos at 0.26 per cent for the same period.Richard Wormald, the head of Mastercard's Australasian business, told Banking Day that the RBA quarterly data did not accurately reflect the true domestic pricing of routing debit payments through his company's network.He said that Mastercard's average merchant fee - as measured by the RBA - includes debit payments received by Australian merchants from cardholders located overseas."We also allow customers coming to Australia to use their Mastercard," he said."That means that the RBA data is not comparing apples with apples because Eftpos only operates for physical transactions that are card-present in Australia."Wormald said that the cut to interchange on all card-present debit transactions followed a general review of fees across different merchant categories in the local market.Mastercard has increased interchange fees on debit transactions handled by public transport providers and for card-not present ecommerce payments that are not tokenised."Our aim is to try and drive change to make the payments system more efficient," Wormald said.When asked by Banking Day why the interchange rate on card present (also known as over-the-counter) transactions was being slashed just as Eftpos entered the contactless processing market, Wormald dismissed the suggestion that the interchange reduction for over-the-counter debit transactions was being subsidised through other types of merchants copping fee hikes."We are not trying to game the system," he said.Wormald said the new Mastercard pricing schedule gave incentives to merchants engaged in ecommerce to "tokenise" online debit transactions, which would deliver two factor verification of a cardholder's identity.He indicated this would help address the online fraud problem that has become a major concern of regulators.Under the new pricing arrangements, ecommerce merchants that adopted Mastercard's tokenised debit service would pay only eight cents per transaction compared to 15 cents for untokenized payments."Merchants can halve their costs if they adopt tokenisation," Wormald said."Our research shows it reduces fraud and it results in a higher transaction rate for ecommerce businesses."In an interview with The