Treasurer Josh Frydenberg is pressing the Reserve Bank of Australia to lower costs for small business by forcing commercial banks to offer cheaper debit card services when customers use tap-and-go payments in stores.

The government wants to mandate “least cost” routing for tap-and-go debit transactions, so business merchants can avoid typically higher fees charged by US card giants Visa and Mastercard and default to the usually cheaper domestic eftpos system.


Mr Frydenberg is also pressing the RBA to mandate that both major and medium-sized banks issue dual-network debit cards with eftpos capability, to stop banks issuing cards that only offer Visa or Mastercard options.

Mr Frydenberg’s move comes only a day after a payments system review for the government by lawyer Scott Farrell urged that the Treasurer be given more powers to direct the RBA on payments issues.

The Treasurer has written to the RBA Payments Board requesting it help lower transaction costs for business under the $430 billion debit card system.

“The Morrison government is committed to lowering costs for small business through the implementation of least-cost routing in the debit card market,” Mr Frydenberg said in a statement.

“That is why I have written to the Payments System Board to strongly encourage them to mandate the issuance of dual-network debit cards by major and medium-sized financial institutions.”

“With a highly competitive marketplace, it’s more important than ever that small businesses and consumers have access to the best possible payment option at the point of sale.”

On average across all transactions, Mastercard/Visa debit card fees are 0.5 per cent, compared with 0.3 per cent for eftpos, and small businesses often face higher fees on average, according to government figures.

The RBA has been facing mounting pressure from the Council of Small Business Organisations Australia (COSBOA), retailing groups and domestic payment network eftpos over its plan to allow second-tier banks to issue debit cards that will work only on the networks operated by Visa and Mastercard.

Visa and Mastercard are attractive to banks because of their larger investment in cyber security technology and the higher fees shared by the card operators and banks.

The RBA had flagged that it will continue to insist that big banks issue “dual network debit cards” (DNDCs) that allow customers or merchants to choose whether to route payments via eftpos, or through Visa or

Foreign bank ING and a group of mutuals that connect to the payments system through Cuscal are considering following Macquarie and HSBC in issuing “single network debit cards” (SNDCs), which connect only to Visa and Mastercard.

The RBA said in May it was inclined to allow banks outside the big four to issue SNDCs because of the “additional costs imposed on those smaller issuers”, including from technical differences between the schemes.

Under the RBA’s draft proposal, regional banks such as Suncorp, Bendigo and Adelaide Bank, and Bank of Queensland could consider removing eftpos as a payments option, reducing competition between debit schemes at the point-of-sale.

More recently at the August meeting of the RBA’s Payment System Board, it said: “The board reviewed responses to the consultation paper published in May, particularly relating to dual network debit cards and least-cost routing, interchange fees and the ‘no-surcharge’ rules of buy now, pay later providers.

“The board expects to publish a conclusions paper and final standards within the next 2 months.“

Beyond in-store payments, the government will consider extending the mandate to online purchases.

“As part of our consultation on the Farrell Review into Australia’s Payment System, the government will consider changes that may be necessary to promote least-cost routing more broadly, particularly in an online and contactless environment,” Mr Frydenberg said.

COSBOA said the government should not put aside the issue of ensuring SMEs have the option of sending payments down the lowest cost network.

“For the banks, it’s a game of smoke and mirrors and complexity is key to charging more and keeping small business in the dark as to the true cost of merchant fees,” said COSBOA chief executive Alexi Boyd.

Mastercard told the RBA during its consultation that some smaller issuers “are questioning the long-term viability of debit issuing” as a result of higher costs.

The RBA said the costs could be “more than a million dollars per year for mid-sized issuers” [of debit cards] and lower for smaller issuers who rely on aggregators like Cuscal, ASL and Indue “but they are still significant amounts in the context of the overall costs of running a debit card portfolio”.

The RBA has acknowledged that Visa and Mastercard offer incentives to issuing banks when eftpos is not available on their cards. The RBA has been critical of the opacity of financial arrangements between the schemes and the banks.

“Some issuers may also be choosing SNDCs in response to financial incentives from the debit schemes, including higher interchange fees on SNDC transactions,” the RBA said in its discussion paper in May.

Contactless payments, which are now the majority of card point-of-sale payments, generally default to the Visa or Mastercard pathways.

Transactions using digital wallets (smartphones) also default to the Visa and Mastercard schemes.

Eftpos’s cents-per-transaction fee is typically cheaper for merchants to receive debit card payments from customers, compared to Visa and Mastercard usually charging a percentage fee of the transaction value.

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