Small business groups and government agencies are ramping up pressure on the major banks to offer least cost routing on contactless debit transactions as part of merchant servicing plans.
Industry lobby groups such as the Master Grocers Association (MGA) and the Australasian Association of Convenience Stores (AACS) are intensifying their long running campaigns to secure least cost routing for independent retailers as the Covid-19 crisis drives up retailers’ total costs of accepting contactless payments.
The Reserve Bank’s Payments System Board directed banks more than two years ago to allow retailers to select the cheapest network to process contactless debit payments instead of the longstanding practice of banks routing such transactions to Visa and Mastercard.
Small business advocates are now demanding that the banks give retailers access to Eftpos Australia’s network that offers a cheaper processing option.
The Australian Small Business and Family Enterprise Ombudsman Kate Carnell is expected this morning to weigh into the debate with a call for each of the four major banks to begin marketing the benefits of least cost routing to business customers “as a matter of urgency”.
“For too long, small businesses have been slugged with unnecessarily high interchange fees from credit card networks, when there is a cheaper option,” said Carnell.
“This is particularly unfair when many small businesses are trying to get back on their feet, with coronavirus restrictions lifting.
“Small businesses are being disproportionally hit by interchange fees, with larger retailers able to bypass full fees by using payment systems directly or by having the market power to negotiate least cost routing with their banks.”
The renewed lobbying by industry groups comes as Eftpos Australia announced plans to halve the interchange fees paid by merchants if they instruct their banks to process tap and go payments through its network.
Banks are reluctant to embrace least cost routing because they stand to lose more than A$500 million in annual revenue if there is widespread take up of the Eftpos offer.
Banking Day has been told by several industry groups that major banks are refusing to talk to them about expediting the rollout of least cost routing as a way of supporting businesses recover from the Covid-19 lockdown.
“They (the banks) are not promoting least cost routing or wanting to talk to people about it,” said MGA chief executive Jos de Bruin whose organisation represents thousands of family-owned grocery and hardware retailers.
“It’s so hard to engage in any meaningful way with the banks on this issue.”
The Reserve Bank’s Payments System Board and several federal parliamentary committees instructed the banks more than two years ago to deliver Eftpos’ cheaper service to merchants.
However, the banks continue to automatically push most contactless debit transactions to the more expensive networks operated by Visa or Mastercard.
Patience among senior federal politicians appears to be fading, with the small business minister Michaelia Cash now advancing a case within the Morrison Government for the banks to be held accountable for slugging business customers on interchange fees.
AACS chief executive Jeff Rogut has called for the government to address the least cost routing issue as part of measures to help businesses recover from Covid-19 lockdown.
In a submission delivered to minister Cash, the AACS recommends that the operators of 7000 convenience stores across Australia be given “immediate” access to the Eftpos service for processing contactless payments and for the Reserve Bank to impose such a requirement on banks.
“Tap-and-go is far more frequently used in convenience store transactions and operators are providing this option, but at an unfair cost,” the AACS told Cash’s office in the document.
“That’s because stores are currently prevented from routing tap-and-go transactions through the least costly payments network.
“Instead of using Australia’s own Eftpos network, which is significantly cheaper, our members are forced to use more expensive international networks such as Visa and Mastercard to route these transactions.
“The difference amounts to thousands of dollars each year.”
Carnell said Eftpos research showed that small businesses could have saved around $30 million on interchange fees in March had they been able to divert transactions from the Mastercard and Visa networks.
““The banks need to do the right thing by Australian small businesses in this economic crisis and deliver least cost routing as a universal service,“ Carnell said.
“As of July, Eftpos has announced it will cut the standard interchange fee paid by small businesses in half to 2 cents for tap-and-go transactions.
“Roll-out of least cost routing should be a priority for the banks.”
The banks might also be facing the possibility of an inquiry by the Australian Competition and Consumer Commission on whether their faltering rollouts of least cost routing constitute anti-competitive behaviour.
“We’ve raised our concerns with the ACCC because we believe the lack of action from the banks is putting independent grocers and hardware stores at a competitive disadvantage to bigger retailers such as Coles, Woolworths and Bunnings,” said the MGA’s de Bruin.
The least cost routing issue is expected to be discussed at the bi-monthly meeting of the Payments System Board on Friday.