News that the treasurer plans to adopt the recommendation of Treasury’s recent review of the payments system and expand the scope of payments system regulation to cover digital wallets and BNPL will be music to the ears of retailers and other merchants.
Discussion at yesterday’s Australian SME Payments Summit was dominated by speakers expressing concern about increasing use of high-cost digital wallets, with no opportunity for merchants to gain efficiencies.
Treasurer Josh Frydenberg said he would introduce legislation next year that would include additional powers for the treasurer to set payment system policy.
Frydenberg said: “For businesses, these reforms will address the ambiguity that can exits about the regulatory and tax treatment of crypto assets and new payment methods.”
In its own review of retail payment regulation in October, the Reserve Bank said there was a growing case for regulatory authorities to have powers to address potential competition and efficiency issues in the digital wallet market.
“However, regulating in this area would be complex and the Bank’s power to do so currently under the Payment System (Regulation) Act is not entirely clear,” it said.
Speaking at the Payments Summit, the head of Asia Pacific for payments consultancy CMSPI, Robbie MacDiarmid, said that over the past five years digital wallets had grown from 2 to 4 per cent of retail payments in Australia, and in some retail segments the proportion was as high as 30 per cent.
MacDiarmid said: “Mobile wallets are the most expensive type of payments for merchants to accept and payments are not routable to the least cost network. It is an area where least cost routing should be mandatory.”
The issue of least cost routing was high on the agenda, with speakers saying it would be the most effective way to introduce price competition into the payment market and an important way of giving merchants some control over the payment processing costs.
Mark McKenzie, the chief executive of the Australian Convenience and Petroleum Marketers Association said the move away from cash to card and electronic payments meant merchant payment fees were rising more than other costs.
McKenzie said merchants wanted “dynamic LCR” (also called smart routing), which would automatically choose to least cost payment network for the merchant.
MacDiarmid said only 10 per cent of retail transaction were 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.
Dhun Karai, a partner in payments and financial advisory at Grant Thornton, said it was up to the merchant sector to get more control in the payments market by getting involved in innovations like QR codes and open banking.
“Mobile wallet payments default to Visa and Mastercard. If merchants want to avoid outcomes like that they need to get involved in developments.”