Eftpos Australia has fired a salvo across the bows of global payments giants Mastercard and Visa, with a move to charge small merchants the same interchange fees as big supermarkets and other chain retailers.
In a move that will test the promises of major banks to do the right thing by small businesses during the current economic crisis, Eftpos has crunched the standard interchange fee paid by small retailers by 50 per cent to 2 cents for contactless debit card transactions.
The bold repricing means small businesses will pay the same rate as big chains whenever a customer waves a debit card over a merchant terminal to pay for purchases. The new rate will be available to small merchants who instruct their bank for Eftpos to process contactless transactions.
The repricing is set to lower the acceptance costs borne by retailers for contactless debit but only if the four major banks agree to deliver least cost routing through the terminals they lease to business customers.
"In the Covid-19 environment where everybody is focused on getting business back up and running you would expect banks promote least cost routing,” said Eftpos CEO Stephen Benton.
"Retailers are accepting more contactless transactions and that means they are incurring sometimes more costs unless they have managed to negotiate an arrangement for least cost routing with their bank."
Since 2017 the Reserve Bank has been urging the banks to add the routing capability to point of sale terminals so that retailers can direct transactions to the lowest cost processing network.
The three big processing networks in Australia are operated by Mastercard, Visa and Eftpos.
However, the roll out of least cost routing has proceeded at a snail’s pace because the banks stand to lose annual revenue of up to A$550 million if transaction processing is diverted from the more expensive global networks.
Eftpos’ lowering of interchange rates from the start of July is likely to increase public pressure on the banks to allow price signals to govern decisions about which network processes contactless payments.
The longstanding practice of most banks - apart from several notable exceptions such as Tyro - is to rout contactless transactions automatically to the mostly more expensive networks operated by Visa and Mastercard.
While the banking industry is trying to project itself as a big supporter of small businesses in the Covid-19 crisis, it is still unable to account for why it is not delivering least cost routing as a universal service.
It is two years since several federal parliamentary committees directed the major banks to embed least cost routing in the merchant services plans they market to retailers.
Benton is hopeful that the banks will accelerate the rollout in the coming months.
“We know we can save businesses - especially small businesses who are doing it very tough at the moment - a significant amount on the costs they incur accepting contactless debit transactions, when those savings are passed on by their acquiring bank,” he said.
‘Our reductions in wholesale interchange pricing are designed to deliver cost savings to merchants who need it most as they restart their businesses and who route transactions to Eftpos.”
Benton said the wholesale interchange reductions were due to apply from the start of July and that Eftpos was working with the federal government, the ABA and banks to secure industry support for least cost routing.