Industry organisations including the Australian Retailers Association, National Retail Association and Small Business Organisations Australia, are calling for urgent action on Australia’s debit payments system due to the threat of higher transaction costs for businesses both in-store and online.  

The Reserve Bank of Australia (RBA) is considering allowing medium and smaller banks to issue debit cards with just one payment scheme on them, instead of two – for instance Visa only, instead of Visa and eftpos.

This would mean banks would be likely to choose one of the international schemes, to save on their own costs of running two networks on one card, and then drop eftpos from the cards – even though eftpos transactions are usually cheaper.

This would remove the ability of merchants to process payments via the method with the lowest debit transaction fees, via a process called Least Cost Routing, costing them potentially significant amounts in lost savings.

Instead, businesses would be left at the mercy of increased costs because they would be forced to use the only international scheme on the card, and whatever they charge.

The associations believe that Multi Network Debit Cards should be mandatory as part of every bank’s social obligation to promote competition in Australia. They also believe Least Cost Routing should be made available as the default option for all merchants in all payment channels, including tap-and-go, mobile wallets and online transactions.

The associations have made their views known to key government stakeholders in an open letter, and will make formal submissions to the RBA’s Review of Retail Payments Regulation in early July.

More background

With increasing use of tap-and-go cards and mobile wallets, debit is Australians’ preferred means of transacting. Fees for these debit transactions are incurred by merchants, which means maximum competition in the market is required to drive down business costs.

Least Cost Routing (LCR) enables merchants to choose the lowest cost debit fee offering – usually eftpos – to minimise their costs, but the introduction of LCR in Australia has been slow in rollout and uptake with new barriers that would make it near impossible to access in mobile wallets and online channels.

These new barriers include:

  • Moving from Multi Network Debit Cards (MNDCs) – which are necessary for LCR – to Single Network Debit Cards (SNDCs) using international schemes, whose fees are usually higher.
  • Failure to enable LCR in mobile wallets, which is available in other markets, for what is an increasingly common form of payment in Australia.
  • New rules and fees that make it harder to access LCR in online payment channels.

These barriers are on top of a lack of transparency in merchant fees and concerns about the tying of credit and debit fee offerings, resulting in a recent court enforceable undertaking by Visa.

In its recent Retail Payments Regulatory Review consultation report, the Reserve Bank of Australia (RBA) makes clear that “a widespread shift towards SNDCs could threaten the viability of LCR” and that if eftpos cannot compete and potentially has to exit the market, this “would result in a significant lessening of competitive pressure in the debit market and would likely result in an increase in both interchange rates and scheme fees, impacting all merchants”.

Business organisations are calling for urgent regulatory action in three areas:

  • Multi Network Debit Cards (MNDCs) are mandatory as part of every bank’s social obligation to promote competition in Australia.
  • Least Cost Routing (LCR) is made available as the default option for all merchants in all payment channels, including tap-and-go, mobile wallets and online transactions.
  • Full transparency of merchant fees.