The announcement by the Federal Treasurer, the Hon Josh Frydenberg, that he has written to the RBA’s Payments System Board calling on them to mandate Least Cost Routing (LCR) and the maintenance of dual network capability on debit cards issued by Australia’s banks, is warmly welcomed by the large number of small and family businesses that operate in the fuel industry.

“The issue of Least Cost Routing (LCR) has been a longstanding concern of ACAPMA, owing to the fact that the debit costs paid by fuel merchants for the processing of debit card transactions has more than doubled over the past 5 years”, said ACAPMA CEO Mark McKenzie.

“Service station owners, nearly two-thirds of which are small to medium businesses, are now paying an estimated $116M in card transaction fees – double what it was in 2016 – just to process the card payments of fuel customers via their payment terminal”, said Mr. McKenzie.

This increase is extraordinary with much of it due to banks apparently taking advantage of the lack of transparency of a complex payments system and quietly routing payments down the generally higher cost international card gateways (i.e. VISA and Mastercard) – as opposed to the generally lower cost domestic ‘Eftpos’ system – because they earn more money that way.

At around 17 cents for a typical fuel transaction processed via the Eftpos gateway versus around 32 cents via the international card gateways, the difference might at first appear trivial.

“But when you are doing hundreds of millions of fuel transactions that cost amounts to businesses paying an estimated $68M per year more than they otherwise might. This equates to around $12,500 per service station per year, or just on 14% of the pre-tax profit of a typical family owned small to medium fuel retail business”, said Mr. McKenzie.

Addressing this issue requires two things, namely: mandating LCR so that all payments ‘default’ to the generally least cost gateway and requiring that all cards have dual gateway functionality given that some banks have sought to default their customers to the higher cost gateway by designing their cards so that all transactions are processed via the single cost gateway – and thereby the bank earns more money from each transaction.

“The Treasurer’s intervention addresses both aspects and comes at a time when the RBA was signaling an unwillingness to tackle this issue head on by mandating LCR and requiring maintenance of dual network debit cards issued by Australian Banks, despite acknowledging that the issue was causing pain for all Australian SMEs irrespective of the industry in which they were operating”, said Mr. McKenzie.

“Most importantly, the Treasurer’s action in writing to the RBA on this matter clearly demonstrates that he is prepared to fight to address a longstanding small business vulnerability on merchant fees when the RBA was not – and that is a great thing”, concluded Mr. McKenzie.

Media Inquiries:
Mark McKenzie
M| 0447 444 011