Westpac has won praise from small business leaders for its decision to proactively market least cost routing to merchants likely to garner savings from the service.
For two years the four major banks have sold their small business customers down the drain by denying them simple access to least cost routing – a service that allows them to reduce the fees they pay for accepting contactless debit card payments.
LCR enables merchants to direct contactless payments to a specific processing provider rather than have them automatically routed via the Mastercard or Visa systems.
Westpac’s move to step up marketing of the benefits of least cost routing means that at least 37,000 business owners will be offered an uncomplicated method for selecting which payments platform – MasterCard, Visa or Eftpos – processes contactless debit transactions waved over their merchant terminals.
While data published by the Reserve Bank shows Eftpos, on average, to be the cheapest processing option for small merchants, the major banks have structured most of their merchant terminal plans with shrewd pricing that pushes the benefits of LCR beyond the reach of most.
The major banks have resisted LCR because its introduction could result in up to A$550 million in fees being wiped annually from their revenue lines.
Westpac’s announcement was welcomed by Australian Small Business and Family Enterprise Ombudsman Kate Carnell who has been a longstanding advocate for getting the banks to support competition in payments.
“Westpac is doing the right thing by Australian small businesses in this economic crisis in delivering least cost routing,” she said.
“I congratulate Westpac for their industry leadership and urge other big banks to follow.”
Westpac yesterday tried to spin the LCR initiative as evidence of the bank’s efforts to support small businesses during the pandemic.
Guil Lima, the head of Westpac’s business division said the “potential for cost savings for merchants” underpinned the bank’s decision to make the move this week.
That assertion begs an obvious question: why didn’t the bank flick the switch two years ago as it promised it would?
There are alternative explanations for why Westpac is moving now to stump up a genuine least cost routing offer to merchants.
The most plausible motive is apparent in APRA monthly banking statistics. These show Westpac needs to generate goodwill among SMEs to revive its ailing business lending performance.
The 12 months to the end of June were an unmitigated disaster for Westpac’s business lending division as small and medium business owners flocked to other lenders such as NAB, CBA, ING and ANZ.
Aggregate lending to companies outside the financial services industry expanded by 4.6 per cent for all banks over the 12 months to June, but the size of Westpac’s loan book reduced by 5.6 per cent or $7.7 billion to $131 billion.
If Westpac can widen its merchant customer base with a materially cheaper offer buttressed by least cost routing it may stand a decent chance of reversing the fortunes of its shrinking business lending operation.