Small businesses grapple with least cost routing payments
(12 December 2018 - Australia) The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) believes it is taking far too long for the banks to move to "least cost" routing to lower the amount operators pay when processing contactless debit transactions.
The House of Representatives economics committee recommended in March 2018 that the major banks revise their systems so that tap-and-go payments made on debit cards were not automatically processed as credit cards given these transaction cost small businesses more to execute. The shift to least-cost processing of contactless debit payments won't happen until next year. The shift to least-cost processing of tap and go debit payments won't happen until next year.
Small Business Ombudsman Kate Carnell is concerned that despite promises, the major banks have not implemented the least-cost routing of their tap-and-go payments for debit cards and hit out at the fact that these changes will not be complete until at least the middle of 2019. "It's unacceptable that the banks promised to implement this year and haven't. They'll say they have other things on their minds, but I reckon the reason they haven't is they're making a quid out of it," Ms Carnell stated. “The average total merchant fee for a debit transaction is 0.26 percent with EFTPOS and 0.58 percent for Visa or Mastercard, and it’s higher for small businesses. So there’s a nice bit of revenue for the banks over the last nine months and another example of their pursuit of profit. We need to see some action by the banks, who still need to rebuild trust and confidence with Australian small businesses.”
Under the new model merchants will be able to control whether debit tap-and-go’s are processed as debit or credit payments. Westpac confirmed it had started trialling a least-cost model which would be available in the first half of 2019, while CBA said it was on a similar timeline and is on track to offer this by mid next year. NAB has started rolling out the offer and more than 2000 of its terminals let business owners choose how tap-and-go debits get processed. More will get access to this in 2019. ANZ said it was working towards providing business customers with the option in 2019. Tyro announced that it was ‘ahead of the curve’ when it introduced “Tap and Save” earlier this year allowing merchants to send debit contactless payments through the more cost-effective EFTPOS network.
Separately CBA will join ANZ in offering Apple Pay, leaving Westpac and NAB has the remaining hold outs. CBA will now offer the increasingly popular service from January 2019 though it is yet to give a specific date. The move comes as recently appointed CEO Matt Comyn moves to put his personal leadership stamp on the reputationally battered institution by re-engaging with customers. The move to offer Apple Pay is huge because it means Australia’s largest retail bank has essentially accepted it cannot beat the US brand in the digital consumer space at a local level and is prepared to sacrifice margin on payments to stop customers defecting.