The Federal Government has committed to lower the costs for businesses through least cost routing. The pledge comes in the wake of Treasurer Josh Frydenberg’s Payments System Review which assessed the adequacy of the current regulatory framework and recognised the presence of regulatory gaps that need to be plugged to ensure the system can handle rapid technological changes that have taken place.
“It was pleasing to see the Treasurer’s letter to the Reserve Bank of Australia (RBA) supporting least cost routing,” Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, SAID. “The Treasurer’s urging of the RBA’s Payment Systems Board to consider mandating the dual-network debits cards to facilitate least-cost routing is a game-changer.
“It is a clear statement that the time for strongly worded letters to financial institutions to ‘do the right thing’ has passed and more decisive action is needed to stop small businesses and family enterprises paying more than they need to for payment services,” Billson added.
The Ombudsman bemoaned that for too long, small businesses have been slugged with unnecessarily high fees from credit card networks when there is a more affordable option available.
“Small businesses are being disproportionally hit by fees, with larger retailers able to bypass full fees by using payment systems directly or by having the market power to negotiate least cost routing with their banks,” Billson said. “While banks have been doing some good work to support small businesses throughout the COVID-19 pandemic, there is an opportunity to build on this now by making least cost routing the default unless a small business chooses an alternative.
“The Government has committed to consider changes that may be necessary to promote least cost routing, particularly in an online and contactless environment,” Billson added. “Effective regulation in this area in a post-COVID economy is essential given the shift to online and digital transactions in recent months.”
The Franchise Coucil of Australia (FCA) also welcomed the initiative to that will mean the Reserve Bank consider forcing large and medium-sized banks and debit card issuers to provide multiple network options for merchants to route “tap-and-go” payments. The FCA is one of the business groups that has called or the RBA to mandate multi-
network cards that process payments via the lowest-cost networks to give small business access to cheaper domestic debit payments schemes.
If the RBA supports the move, it will allow merchants to avoid the typically higher fees charged by international schemes and default to the cheaper domestic eftpos system,” FCA CEO Mary Aldred said. “Facilitating lower debit transaction costs is especially important at the moment for struggling small businesses which are doing it tough during the COVID trading restrictions and lockdown impacts.
“Australians have significantly shifted to online and digital transactions over the past eighteen months and neither they nor business should be penalised by unnecessarily high transaction charges which only benefit overseas financial institutions.,” Aldred added. “As the financial impacts of COVID bite, the next challenge for government and banks is to
review high costs credit cards, many of which are still up around 20 per cent or higher at a time when general and home interest rates are at historically low levels.”
