Two of Australia’s major banks are considering whether to offer discounted interchange fees for small businesses under a special program currently being rolled out by Visa.
As reported on Wednesday in Banking Day, Visa recently launched a “preferential interchange rate” for small businesses that promises to dramatically reduce the fees they incur for sending debit card payments through its network.
National Australia Bank, which has a long term strategic partnership with Visa, confirmed on Wednesday that it was in talks with the global card scheme about pitching the program to its SME merchant base, but had not yet made a decision on whether to proceed.
“NAB is in discussions with Visa to better understand the specifics of its new program and how it may assist our merchant customers,” a bank spokesperson said.
ANZ Worldline Payment Solutions – the joint venture acquiring business that services ANZ merchants – also confirmed it was considering the new Visa offer.
“We’re pleased that Visa is introducing programs to help lower costs for businesses and we’re currently looking at the types of businesses this program would most benefit,” an ANZ Worldline spokesperson said.
However, some other major banks and specialist acquirers appear to have ruled out activating the new Visa service.
Banking Day understands that merchant customers of Westpac will not be offered access to the program.
It is believed that Westpac has ruled out adopting the program on concerns that it may complicate the delivery of merchant choice routing to retailers using its payments terminals.
It is understood that the program has also received a lukewarm response from Commonwealth Bank, but the country’s largest merchant acquirer and debit card issuer was unable to make an official comment before Banking Day entered production on Wednesday evening.
A downside for the major banks of the reduced interchange rate is that it will likely result in their card-issuing businesses collecting less revenue on Visa transactions managed under the program.
That’s a tangible disincentive for the likes of Westpac and CBA given that they are the two largest issuers of debit cards in the country.
Under the new Visa offer, which needs to be activated by a retailer’s bank, the interchange fee paid by small merchants would be reduced to a flat rate of only 2.2 cents for in-store transactions.
The repricing would deliver material savings for small retailers in light of the fact that most currently pay up to 0.2 per cent on the value of debit transactions.
On a $100 card purchase small merchants currently pay interchange of up to 20 cents, but this would be crunched to only 2.2 cents under the program.
The interchange rate is a key contributor to the total merchant service fees paid each month by retailers for accepting card-based payments.
Other components of the merchant service fee include scheme fees and costs incurred by banks for providing transaction acquiring services to retailers.
The Reserve Bank estimates that the average total merchant service fee paid by retailers for accepting Visa or Mastercard debit transactions was 0.51 per cent in the September quarter.
This is significantly higher than the average total merchant fee of 0.34 per cent they incur on debit transactions processed by Eftpos Australia.
The pricing differential between Eftpos and the global schemes has resulted in the domestic scheme making significant gains in the debit processing market in the last 12 months.
The sustained debit market share losses come at an awkward moment for Visa and Mastercard whose respective credit card businesses are also losing ground to charge cards issued by American Express.