Small business advocates say they are deeply concerned about the lethargic rollout of least cost routing services by the major banks, following the publication of new research showing that only 18 per cent of Australian debit card payments are routable.
A study of the Australian merchant services market by global payments consultancy CMSPI found that local retailers missed out on A$67 million of potential cost savings for accepting debit card payments in August because they were unable to direct transactions to the cheapest processing network.
The major Australian banks automatically direct most debit transactions to global schemes – Visa and Mastercard – which on average process payments at a higher cost than Eftpos Australia.
Least cost routing is a service that allows merchants to intervene in the payments process by advising their bank to route debit payments to their preferred network.
For many years small business groups such as COSBOA and the Master Grocers Association have been calling on the Reserve Bank to unwind these restrictions to help lower the average acceptance costs of retailers.
The CMSPI findings indicate that the total annual opportunity cost for retailers not having convenient access to least cost routing is more than $800 million.
This is much higher than previous estimates of around $500 million cited in 2019 by the Australian Retailers Association.
The CMSPI research has horrified local small business leaders who say the findings highlight the urgency of their repeated calls for the Reserve Bank to mandate least cost routing for all debit card transactions.
COSBOA chief executive Alexi Boyd said the high cost of accepting debit card payments was a strain on small businesses that regulators should no longer tolerate.
“Retail payments consulting company CMSPI’s Insight’s Team has released information that suggest merchants are paying $67 million a month in merchant fees because least cost routing is not being made available to businesses,” she said.
“Their data suggests only 18 per cent of transaction value in Australia is currently routable, a huge difference to the Australian banking industry’s claim that it has made LCR available to over 90 per cent of businesses in Australia.
“In countries like France 83 per cent of card transactions are routable, and Germany is 61 per cent.”
Boyd said the CMSPI research highlighted the importance of domestic card schemes, such as Eftpos, for creating a competitive environment and putting downward pressure on card fees borne by business owners.
The CMSPI research comes at a sensitive moment in the payments industry, with the RBA expected next month to release the final policy outcomes of its review of the sector.
While the RBA review indicated in a preliminary report that it would not mandate least cost routing in the debit market, recent intervention by federal treasurer Josh Frydenberg appears to have established a roadmap for mandating LCR across different payments channels.
As part of the review the RBA is also examining ways to tackle the lack of transparency in the setting of scheme fees by Visa and Mastercard.
The CMSPI study found that changes to Australian scheme fees in April this year had an aggregate impact