Despite changes to interchange fee regulations earlier this year, small businesses and Australian consumers are still paying more for the convenience of electronic payments, according to the Reserve Bank of Australia (RBA), indicating that some acquiring banks are yet to pass on their savings on interchange costs.
Speaking at the 2017 Australian Payment Summit, RBA head of payments policy, Tony Richards, went over some of the data around the cost of electronic payments to merchants, and its impact on everyday Australians.
Electronic payments costing more for small business
Looking at data gathered over the 2016/17 financial year (prior to the interchange fee changes), it was found that eftpos payments were the least expensive electronic payment option for merchants, followed by MasterCard and Visa debit, MasterCard and Visa credit, and Unionpay, due to the difference in interchange fees for these systems.
However, even eftpos was found to be expensive for some merchants to provide, such as coffee shops where the value of each individual transaction tends to be lower.
This was reflective of a wider trend where smaller merchants were experiencing higher average payment costs than larger merchants, for reasons including:
- Merchants with smaller transaction volumes may struggle to manage the fixed costs associated with providing payment services.
- Smaller merchants may have less bargaining power with acquirers.
- Smaller merchants are less likely to benefit from strategic or preferred interchange rates from card schemes.
- Smaller merchants may be less financially sophisticated and may not always choose, or be offered, plans from their acquiring banks that would minimise their payment costs.
While not as much data was available in the post-interchange fee period, it was found that there has been some narrowing in the cost to merchants of eftpos and Visa/MasterCard debit schemes. However, a significant difference remains between the two, indicating that savings on interchange costs due to the new regulations may not yet be being passed through by acquirer banks.
Tap & go – the cost of convenience
One factor potentially contributing to the higher payment costs being copped by smaller businesses is the current arrangement of tap and go payment systems.
Many of these contactless payment terminals are currently set up to automatically route payments through the international MasterCard or Visa networks, rather than the local eftpos network, even for non-credit transactions.
And due to the convenience of tap and go payments, the popularity of these systems can push up their potential cost to small business.
The higher merchant costs associated with these transactions can result in Australian shoppers being charged higher prices, or having to pay surcharges or minimum transaction values when making electronic payments.
Many merchants have begun calling for least-cost payments, where electronic payment terminals are set up to automatically route digital payments through whatever channels will charge the fewest fees to the merchants .
According to Mr Richards, the RBA has been in discussions with consumer organisations and the Australian Competition and Consumer Commission (ACCC) around implementing least cost routing, in the interest of providing fairness to Australian small businesses and shoppers.
Recent meetings of the Payment Systems Board have recommended that banks be required to give merchants the ability to send tap-and-go payments from dual-network debit cards through the channel of their choice, with regulation to this effect to occur if the banks have not facilitated this recommendation by 1 April 2018.