The small business lobby is hoping to keep the issue of least cost routing high on the payments agenda as the government works through last year’s Payments System Review, launching a campaign to demonstrate the significant cost savings LCR offers merchants.
The Council of Small Business Organisations Australia called on the government to make LCR mandatory, saying small business owners often faced obstacles when asking their banks to implement it.
Retailers and merchants are concerned that as consumers use less cash and rely more on debit cards and digital wallets for payments, transaction fees are a growing cost. They want to see more innovation and competition in payments, particularly if it leads to lower costs.
LCR relies on the issuance of dual network debit cards, allowing point of sale transactions to be routed through the eftpos network or Visa or Mastercard. The majority of debit cards issued in Australia are dual network.
When a consumer taps a debit card or waves a mobile device at a terminal, or makes an online debit card transaction, the transactions default to the global card schemes, which in most cases charge higher fees than eftpos.
COSBOA said: “Unacceptably, when consumers use dual network debit cards, these transactions default to the higher rather than the lowest costs card scheme. This means that small businesses often have to pay thousands of dollars more a year in card fees than they should.”
The Reserve Bank has said LCR can help reduce merchant payment costs and increase competitive pressure between the debit schemes. It has also acknowledged that the banks have been slow to implement LCR.
In its own payments system review last year, it proposed including “an explicit expectation that the major banks will continue to issue dual-network debit cards, with both schemes to be provisioned in all form factors”.
However, the Payments System Board said it does not see the need for explicit regulatory requirements in relation to LCR at this stage.
COSBOA cited “independent analysis” which estimates that if all debit card transactions in Australia used the lowest cost payment scheme, merchants would save between A$800 million and $1.2 billion in fees a tear.
The head of Asia Pacific for payments consultancy CMSPI, Robbie MacDiarmid, told delegates at a payment conference last year that only 10 per cent of retail transaction are being routed and 18 per cent could be routed under current systems.
“That is, 18 per cent of in-store, online and mobile wallet payment can be routed. We have an opportunity to do a lot better,” he said.
The LCR issue was aired extensively last year, when the Australian Competition and Consumer Commission reviewed the proposed merger of BPAY, eftpos and NPP Australia to form Australian Payments Plus.
The parties gave an undertaking that the merged entity would ensure that eftpos will do everything in its control to make LCR available for three years, and ensure the eftpos scheme and eftpos card issuing and acceptance infrastructure will be maintained for three years.
COSBOA said the undertaking does not bind AP+ or the banks to take the necessary