Least Cost Routing has to be made available to retail businesses, but it still isn’t a legislated default. A recent COSBOA summit focusing on payment processing costs for small businesses highlighted where Australia is sitting internationally as a result.
So how much of the total digital payment market is covered by least cost routing?
According to data from global payments consultancy business CMSPI, in the month of July, less than 10% of all debit transactions were being routed in Australia.
CMSPI head of Asia Pacific, Robbie MacDiarmid told the summit, “But up to 18% have the potential to be routed under the current systems.”
So what explains the shortfall? MacDiarmid says it’s the case of businesses not requesting — or demanding —- least cost routing to be enabled for them.
If you’re a smaller retailer too, it’s less likely that you’ve got least cost routing enabled too, as MacDiarmid says, “Quite a significant proportion of that [10%] is taken up by very large retailers that are routing millions, hundreds of millions, billions of transactions themselves.”
While one in five (18%) of transactions can be routed in Australia, in France and Germany it’s a very different picture, according to CMSPI.
In France, that figure is 83%, or just above four out of five. In Germany, it’s 61%, or three out of five.
MacDiarmid explains, “In France, you have rights and availability across all in-store transactions, most online transactions and also on credit transactions too.”
MacDiarmid made the point that to reach the levels of France, or Germany, Australia would need to mandate that acquirers, and merchant’s banks provide routing solutions in store, online, and for digital wallets.
“And effectively making sure that merchants have that choice across all those transactions”, he says.
But even smaller merchants, representing the bottom 10% of value of transactions, are paying less in payment processing fees than large merchants in the US, says Tony Richards, former Head of Payments Policy Department, Reserve Bank of Australia.
“So small merchants have low payment costs by international standards,” Richards told the summit.
Australasian Convenience & Petroleum Marketers Association CEO, Mark McKenzie and former COSBOA chair, did respond to that comparison, noting, “I don’t know that benchmarking with the most expensive market in the world is actually relevant.”
McKenzie also pointed out that the US doesn’t not have a domestic payments processing business — like eftpos — putting tension in the market and bringing down prices.