The Reserve Bank of Australia fails small business retailers in its Review of Merchant Card Payment Costs and Surcharging Consultation Paper

The Reserve Bank of Australia has released its Review of Merchant Card Payment Costs and Surcharging Consultation Paper.

The RBA consultation paper proposed no changes that support or protect small businesses from the absolute dominance of the payments space by the big four banks in Australia and multi national corporations that put offshore profits ahead of Aussie consumers and small business owners.

The RBA could have taken a clearer position. What the Governor wrote in a OpEd in News Corp papers today reflects breathtaking ignorance on surcharges, the costs businesses, especially small businesses, face and how banks and others behave in relation to small business retailers.

Least cost routing (LCR). The RBA is considering whether a formal mandate for LCR is necessary, particularly for in-person and online transactions. For small businesses, wider adoption of LCR could lead to significant savings on merchant fees. Evidence indicates that merchants with LCR enabled have nearly 20% lower debit card transaction costs.

Interchange fees. A huge gap exists between the interchange fees paid by large and small businesses yet each transaction for each business has the same costs for the providers. The RBA says it is exploring measures to address this, which could include setting a floor on interchange rates or introducing lower caps on these fees for transactions at small businesses. While I’m no expert, I don’t see what has to be explored: regulate so everyone is on the same playing field.

Ban on surcharging. Without fixing the above to be fair for small businesses, a ban on surcharging will not save $1.2B for Aussies as the cost will still be there. Without corresponding reductions in underlying costs, could force small businesses to either absorb losses or increase prices, potentially making them less competitive.

A ban on surcharging without fairness on interchange fees and mandated least cost routing would be unfair to small business retailers.

The RBA may say they need to do their thing in isolation. They con’t. They and the government need to work hand in hand to fix the current broken and fundamentally unfair system.

If small business retailers really are as important to Australia as politicians from all parties tell us we are, right now is the time for them to step up for as things look, small business retailers are about to be fed a turd sandwich.

If you are a small business retailer here is what you can do today in addition to lobbying your local federal member and senators.

1. Activate Least-Cost Routing:
   • What to do: Call the merchant services number for your bank or payment provider (e.g., your bank, Tyro, ANZ, Suncorp etc).
   • What to say: “I am calling to ensure that Least-Cost Routing is enabled on my payment terminal(s). I want all eligible debit card transactions to be processed through the cheapest network, which is typically eftpos.”
   • Why: LCR is not always enabled by default. Activating it can immediately reduce your fees on debit card tap-and-go payments by 15-20% without changing anything else. There is generally no cost to enable it.
2. Audit Your Current Merchant Fees:
   • What to do: Find your most recent merchant statement. Don’t just look at the total fee. Look for the different rates you’re being charged for different cards (e.g., Visa Debit, Mastercard Debit, eftpos, Visa Credit, Amex).
   • Why: You need to understand your “blended rate” or your true average cost. Calculate it by dividing your total fees by your total card sales for that month. A rate of 1.5% means you pay $1.50 for every $100 in sales. Your figure should be considerably less than this.
3. Shop Around for a Better Deal:
   • What to do: Armed with your true cost from the audit, contact other payment providers. Get quotes from both traditional banks and newer fintech providers.
   • What to ask: “My current blended rate for card acceptance is X%. Can you offer a better rate? What are your terminal rental fees? Is there a lock-in contract?”
   • Why: The payments market is competitive. Your loyalty to one provider could be costing you money. Providers are often willing to negotiate to win your business.

If small business retailers really are as important to Australia as politicians from all parties tell us we are, right now is the time for them to step up for as things look, small business retailers are about to be fed a turd sandwich.