The Reserve Bank of Australia’s recent review of retail payments regulations has been called out for falling short of providing vital changes small businesses require to compete on an equal footing by the Australian Small Business and Family Enterprose Ombudsman (ASBFEO), Bruce Billson.
The Reserve Bank has that said that it expected payment providers to “offer and promote least-cost routing” by the end of 2022 but has failed to mandate it as the default option and has not provide explicit regulatory requirements.
“More decisive action is urgently needed to stop small businesses and family enterprises paying more than they need to for payment services,” Billson said in a statement.
Debit cards are currently the most frequently used payment method in Australia and the Reserve Bank acknowledged that 90 per cent of debit cards are dual-network debit cards (DNDCs) which means they allow payment via either eftpos or one of the international debit schemes (such as Debit Mastercard of Visa Debit).
However, the widespread use of “tap-and-go” and other contactless electronic payments such as smartphones do not allow customers a choice to choose CHQ or SAV from the typically lower-cost eftpos network and it defaults to the international network that can have higher costs for merchants. Mandating least-cost routing as the default would mean the cheapest payment method would be available to merchants.
“For too long, small businesses have been slugged with unnecessarily high fees from credit card networks, when there is a cheaper option,” Billson said. “The Reserve Bank could have and should have done more after years of ‘urging banks to do the right thing’, which has resulted in an inadequate response and poor access and uptake of least-cost routing for small merchants.
“We are keen to work with sector participants to make least-cost routing the mandated default option for all small business payment methods, especially smart devices used as touchless payment tools,” Billson added.
The Reserve Bank review also said the eight biggest card issuers would be expected to continue to issue DNDCs and called for this to include all forms of payment, including mobile-wallet providers. However, there is no enforcement provided and the report does not require other providers of debit cards with a smaller market share to provide DNDCs, which some say may cause confusion in the market with two sets of rules in place.
Billson added the small-business sector would welcome the Reserve Bank’s finding that it would be “in the public interest” for buy now, pay later (BNPL) providers to remove their no-surcharge rules but noted there was no action to enforce this or help small businesses if they receive push back from BNPL operators.
“Small businesses are currently forced to absorb the cost of BNPL offerings and with often slim margins this places pressure on businesses’ bottom-line,” Billson said. “The rapid growth in the BNPL industry means it will no longer be an optional extra for a small business and they will be significantly disadvantaged unless they are able to pass on the surcharges.”
However, Billson said he was heartened that the Reserve Bank acknowledged it was important to reduce the cost to small and medium-sized merchants of accepting card payments, but that much more was needed to deliver on this.
“A safe and robust retail payments system that provides access to affordable and efficient means for small-business owners to accept payments is crucial to their viability,” Billson concluded.