In late 2017, ACAPMA began to receive inquiries from members about the rising cost of merchant fees (i.e. the charges levied by banks to process credit card and debit card transactions processed by fuel businesses via their payment terminals). Investigation of the source of this increase revealed that the cost of debit transactions (as opposed to credit transactions) had almost tripled for many fuel retailers – apparently due to the introduction of ‘Tap n Go’ for consumers (Quiet increase in debit charges for many fuel retail businesses).

The problem was further compounded by the fact that Australian consumers had increasingly shifted to using debit cards for regular low value transactions – as opposed to further building up household debt on credit cards.

“When we examined the cause of the observed increase in merchant fees, it was clear that the change in cost of debit transactions – coupled with the increasing volume of debit transactions – had more than doubled transactions costs for many fuel retailers in recent years”, said ACAPMA CEO Mark McKenzie

To address this issue, ACAPMA partnered with the Council of Small Business Organisations Australia (COSBOA) and a host of other industry bodies to lobby the Reserve Bank of Australia (RBA) to advance a series of actions to address the issues. While the RBA acknowledged the issue, the RBA advised that it was unwilling to address the issue through regulation. Instead, the RBA sought to ‘encourage’ the banks to introduce Least Cost Routing under the threat of legislation if such action was not pursued.

Least Cost Routing refers to the functionality on a payments terminal where the merchant has the capacity to choose between processing a payment via the higher cost international card gateways (i.e. MasterCard and Visa) versus the lower cost EFTPOS gateway. This was seen as a preferred alternative to the current practice of all Australian banks defaulting to the higher cost gateways – basically because the banks earn more money from the international card gateways for processing payments than they do from Eftpos.

While defaulting payments via the higher cost international card gateways makes sense for the banks because they earn more, it makes no sense whatsoever for business because they are the ones who are funding these higher payments”, said Mark.

“What is worse, the complex and opaque nature of merchant fee arrangements provided by the banks means that most businesses were unaware of the lower cost alternatives – and the fact that their bank was automatically directing payments via the higher cost gateway”, added Mark.

Thankfully, the public campaign and lobbying by ACAPMA and other industry bodies resulted in all of Australia’s major banks introducing Least Cost Routing functionality during 2019. This meant that business owners could request that their debit payments were processed via the lower cost Eftpos gateway.

The new LCR arrangements were not perfect, with many of our members reporting that their banks were apparently frustrating their attempts to change to the lower cost gateway by increasing the costs of other business services. Other businesses were reporting that the banks made the process so difficult and confusing that they ultimately gave up.

“The result is that two years since the introduction of LCR in Australia, less than 7% of all eligible Australian businesses have implemented Least Cost Routing in their business”, said Mark.

This is despite the fact that early experience with fuel retailers that moved onto these arrangements revealed that a service station business could save an average of $12,500 per year in merchant charges”, said Mark.

Given the ineffective nature of the Banks’ efforts to promote Least Cost Routing, ACAPMA was hopeful that the announcement of a review of the Retail Payments Regulation by the Reserve Bank of Australia would result in a decision to require all Australian Banks to default payments to the least cost route – as has been done in many other international economies. Such action would reduce direct costs for businesses – especially small businesses – and ultimately reduce the indirect costs for customers.

“This step is considered necessary because it is considered highly unlikely that Australia’s banks would genuinely promote least cost routing for Australia’s businesses given that such action would result in them earning less income from processing debit card transactions”, said Mark.

“ACAPMA estimates that Australian fuel retailers are paying $82.2m per year in unnecessary debit card costs – and these costs are ultimately being borne by Australian motorists”, said Mark.

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