ACAPMA has made a comprehensive submission to the Reserve Bank of Australia (RBA) in response to its call for submissions to a Review of Merchant Card Costs & Surcharging [Merchant Card Payment Costs and Surcharging – October 2024].
The submission addresses key industry concerns about escalating card payment costs within the context of wider community concerns about surcharging practices and in the face of a widespread consumer shift from the use of cash to electronic payments [RBA to review Card Payment surcharges – ACAPMAg].
ACAPMA points to the fact that the issues identified in this review are not new. In fact, these issues have been a topic of political and regulatory debate since 1997 and were the subject of a major RBAs review of the Australian Retail Payments Regulation in 2021 [Payments System Regulation | RBA].
1. PAST ADVOCACY ON MERCHANT FEES
In 2017, ACAPMA investigated the rising costs of merchant fees in the fuel industry following widespread reports from retailers about the escalating cost of merchant fees. The results of this investigation were discussed in a submission to the RBA’s 2021 Review of the Retail Payments Regulation and revealed that:
- Impact of “Tap and Go” Technology
- Many debit transactions were being routed through higher-cost international credit card gateways rather than the cheaper Eftpos network.
- Australian banks played a role in this costly routing process, taking advantage of Eftpos’s then-limited capabilities for tap-and-go transactions.
- Escalating Costs are being paid by retailers.
- Debit transaction costs for many retailers tripled due to this routing issue and the opaque structure of merchant fee offerings.
- Industry analysis estimated an annual cost increase of $69 million for fuel retailers, a burden ultimately passed on to consumers as higher fuel prices.
Following the 2017 investigation, ACAPMA joined forces with the Master Grocers Association of Australia (MGAA) and the Council of Small Business Organisations of Australia (COSBOA) to push for greater transparency of merchant fee charges and the introduction of Least Cost Routing (LCR) [Retailers unite to fight for lower ‘tap and go’ card fees – ACAPMAg].
These efforts contributed to an increased political awareness of the issue for SMEs and resulted in the adoption of a simplified LCR framework (i.e. Static LCR) by many of the major banks in 2019.
Despite more than 5 years having elapsed since the introduction of these LCR offerings, just 1 in 2 eligible small businesses have adopted LCR, suggesting that there is an urgent need to investigate the effectiveness of this voluntary measure.
2. PURPOSE & SCOPE OF CURRENT RBA REVIEW OF MERCHANT CARD COSTS
The Reserve Bank of Australia (RBA) initiated its Review of Merchant Card Payment Costs and Surcharging on 15 October 2024. The purpose and scope of the Review are identified in an Issues Paper [Merchant Card Payment Costs and Surcharging – October 2024] with the principal aims being: (a) to assess the expenses merchants incur when accepting card payments, and (b) to evaluate the current surcharging framework.
The RBA’s review aims to reassess the regulatory framework governing card payment costs and surcharging. The scope of the review extends to an investigation of critical aspects of the payments ecosystem, including: (a) merchant service fees, (b) interchange fees, (c) surcharging practices, and (d) the operation of the overall regulatory framework.
3. ACAPMA’s SUBMISSION TO THE RBA REVIEW
ACAPMA’s submission was forwarded to the RBA on 3 December 2024. The submission sought to provide detailed recommendations, focusing on practical solutions that balance the needs of small businesses, consumers, and the broader payments industry.
The submission was developed around four key messages. These messages are briefly summarised below.
- Opposition to the Abolition of Surcharging
ACAPMA strongly opposes any proposal to ban surcharging by retailers. Eliminating surcharges would disproportionately harm small businesses, which already face higher per-unit costs for card transactions compared to larger enterprises. For fuel retailers operating in highly competitive markets, such a move would further erode margins and increase financial strain. - Opportunities to Improve Competition in Merchant Card Markets
ACAPMA identified two key measures to address the rising costs of merchant card payments:- Mandatory Transparency Requirements: Require all card providers to report a detailed breakdown of merchant fees, including interchange fees, acquirer fees, scheme fees, and additional indirect costs (e.g., fraud prevention). This data could be published by the RBA or ACCC, enabling merchants to compare offerings similar to the ACCC’s reporting on fuel prices.
- Simplified Fee Disclosures: Introduce a legislative requirement for clear, simplified summaries of debit and credit merchant fees in all new contracts and renewals. This approach could mimic the Comparison Rate framework used in the financial lending sector to facilitate easy comparison.
- Mandating Dynamic Least Cost Routing (LCR)
ACAPMA called for the mandatory implementation of Dynamic Least Cost Routing (LCR) by January 1, 2026. Unlike the current Static LCR system, which requires merchants to choose a single gateway, Dynamic LCR would allow for real-time cost comparisons at the point of sale. This ensures that each transaction is processed through the least expensive gateway based on the card and transaction value.Dynamic LCR would guarantee that consumers are charged the lowest possible cost for electronic transactions, removing inefficiencies and reducing the burden on both merchants and customers. - Avoiding Price Regulation
While acknowledging the high costs of merchant fees, ACAPMA argues that direct price regulation of components like interchange fees is unnecessary if transparency and competition are improved. A transparent, competitive market will naturally drive costs down, benefiting both merchants and consumers.
4. SUMMARY
ACAPMA’s submission advocates for practical reforms to lower merchant card payment costs while safeguarding the interests of small businesses in competitive markets like fuel retailing. Key recommendations include:
- Maintaining retailers’ ability to surcharge to offset high transaction costs.
- Improving transparency in merchant fee structures to foster competition.
- Mandating Dynamic LCR to ensure cost efficiency at the point of sale.
ACAPMA believes these reforms will empower merchants to make informed choices, encourage competitive pricing in the payments market, and deliver tangible benefits to Australian consumers.
A full copy of ACAPMA’s submission can be downloaded here.
ACAPMA
