Westpac might be on a collision course with the Reserve Bank over its decision to introduce a flat rate charge of 1.4 per cent on merchants using their mobile phone as a payment terminal.
The bank yesterday announced that it had struck a deal with Apple to facilitate contactless debit and credit card payments between shoppers and merchants who use iPhones.
While the deal is a milestone that will no doubt help to accelerate the shift to mobile wallet transactions, it is also potentially controversial given that the Reserve Bank warned the major banks less than a month ago that they must expedite the rollout of least cost routing for contactless debit transactions.
Least cost routing (LCR) is a service that allows retailers to direct contactless debit card transactions to the cheapest payments processor, which for most local retailers is the Australian-owned eftpos network.??LCR enables merchants to override the default routing decisions of the major banks that steer contactless payments to the Visa and Mastercard platforms, which on average levy much higher fees on retailers than eftpos.
Westpac last night revealed to Banking Day that it would be charging merchants a flat rate of 1.4 per cent to process any transaction through its mobile payments platform, known as EFTPOS Air.
The bank is pitching the 1.4 per cent fee as a “simple flat rate” and said that it was not a “merchant service fee”.
“We offer our merchant customers a range of pricing options, including merchant choice routing,” a bank spokesperson said.
“For EFTPOS Air, we are offering a simple flat rate of 1.4 per cent on eftpos, Mastercard and Visa transactions, with no merchant fee, and access to our bundled point of sale software.”
The Westpac pricing move is controversial because the average merchant service fee for processing an eftpos debit transaction - according to the Reserve Bank - falls within a range of 0.29 per cent to 0.36 per cent.
While Westpac has binned the merchant fee with its bundled offer, it is effectively preparing to magnify the cost of processing an eftpos transaction by at least 300 per cent for merchants who migrate to the EFTPOS Air service.
Westpac’s bundled flat rate appears to preclude merchants signed up to the EFTPOS Air offer from realising the full benefit of LCR.
Because of that it probably rails against the spirit of the Reserve Bank’s reform program and its efforts to deliver the financial benefits of least cost routing to merchants using their phone as a payments terminal.
The head of the RBA’s payments department Ellis Connolly last month described the industry’s progress on LCR as “disappointing” and called on banks to lift their game by the end of June.
“The take-up of LCR by merchants remains disappointingly low,” he said in April.
“Merchant groups have consistently highlighted that LCR is not easily accessible for merchants in practice.”
Connolly noted that mobile wallet transactions through Apple Pay, Google Pay and Samsung Pay were “the final frontier” for embedding least cost routing in the payments marketplace.
“We have been engaging regularly with the mobile wallet providers over the past year and have concluded that it should be feasible to introduce LCR for mobile wallet transactions by the end of 2024,” he said.
“ The mobile wallet providers and other industry participants are working towards meeting this timeline.”
A spokesperson for Australian Payments Plus – the company that operates the eftpos service – confirmed that least cost routing was now available for mobile wallet transactions conducted on iPhones.
However, the activation of the LCR service required agreement between merchants and their banks.
“Least cost routing or merchant choice routing is available for eftpos cards at participating acquirers/merchants on Apple Tap to Pay on iPhone SDK,” the AP Plus spokesperson said.
“This will be determined according to the approach agreed between each merchant and their relevant merchant acquirer.”
Banking Day last night also put questions to Tyro Payments about its approach to pricing when merchants use their mobile phone as a payments terminal.
Tyro also announced on Wednesday that it had struck a deal with Apple to facilitate mobile wallet transactions on iPhone devices but did not reveal details about the costs to be borne by merchants.