The Reserve Bank of Australia’s recent consultation paper on merchant payment costs was a critical opportunity for reform. Instead, it signals a profound disconnect from the realities faced by small businesses, threatening to entrench an inequitable system dominated by major banks and multinational payment organisations.
A month ago, the Reserve Bank of Australia (RBA) released its Review of Merchant Card Payment Costs and Surcharging Consultation Paper. While sounding procedural, its implications could be serious for small businesses, especially small business retailers, like newsagents.
Are you paying attention?
The paper’s proposals, or lack thereof, fail to address the fundamental unfairness baked into the Australia’s payment systems, leaving small businesses, what we are told regularly is the backbone of our economy, vulnerable while protecting the interests of powerful incumbents.
The RBA’s review overlooks the core issues and, if its current direction holds, could force small business retailers into an impossible choice: absorb unsustainable costs or lose competitiveness.
The are three critical flaws in the current system.
1. Least-cost routing (LCR): savings left on the table. Least-cost routing is a simple and powerful mechanism. It automatically processes a customer’s tap-and-go debit payment through the cheapest available network, typically eftpos. The RBA’s own data suggest that merchants with LCR enabled enjoy debit card transaction costs nearly 20% lower than those without.
Yet, LCR is not the default. The RBA is merely considering a formal mandate. This hesitation leaves significant, achievable savings out of reach for small businesses who are often unaware the option even exists. In a landscape of rising operational costs, withholding a straightforward tool for cost reduction is inexcusable.
2. Interchange fees: A system rigged for the big business. An inequity exists in the structure of interchange fees, the fees paid between banks for the acceptance of card-based transactions. Big businesses leverage their bargaining power to negotiate substantially lower rates than small, independent businesses for the exact same transaction. The cost to the provider is identical, but the price for the small business owner is artificially inflated.
The RBA acknowledges this gap and says it is exploring measures to address it. This issue does not require exploration; it requires regulation. A fair system would establish a level playing field where the cost of a transaction is not determined by the size of the business processing it.
3. The surcharging ban: treating the symptom, not the disease. Perhaps the most alarming proposal is a potential ban on surcharging, promoted as a $1.2 billion saving for Australian consumers. This figure is a mirage. Banning surcharges does not eliminate the cost; it simply transfers the full burden onto the business owner.
Without first mandating LCR and legislating fair interchange fees, a ban on surcharging would be a dumb. Small businesses would be forced to either absorb these costs or raise their prices. This punishes customers, makes small businesses less competitive, and ignores the problem. The surcharge is a symptom of excessive costs, not the cause.
What you can do now
While we must demand the government and RBA work in tandem to fix this broken system, waiting is not an option. Small business owners can take immediate, proactive steps to mitigate these unfair costs.
1. Mandate least-cost routing on your terminals. Do not assume it is active. Contact your bank or payment provider (e.g., your bank, Tyro, ANZ, Suncorp) and state clearly: 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. This single phone call can reduce your debit transaction fees by 15-20% at no cost to you.
2. Scrutinise your merchant statements. Analyse your most recent statement to understand your true cost of acceptance. Calculate your “blended rate” by dividing the total fees paid by your total card sales for the month. This will give you a clear percentage. If you pay $150 in fees on $10,000 of sales, your blended rate is 1.5%. You must know this figure to effectively negotiate.
3. Leverage a competitive market. Armed with your blended rate, shop around. Contact other payment providers, from traditional banks to modern fintech companies. Ask them directly: My current blended rate is X%. Can you offer a better rate? What are your terminal rental fees and is there a lock-in contract? Loyalty to a single provider can be expensive; in a competitive market, providers must earn your business.
Politicians from all parties laud small businesses as the engine room of the Australian economy, now is the time for them to act. Without decisive intervention to create a fair, transparent, and equitable payment system, our nation’s retailers are about to be dealt a significant financial blow. It’s time for policy to match the rhetoric.
I have written about this again today to put in front of newsagents again. Complaining later will not be as powerful as acting now.
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Mark Fletcher founded newsagency software company Tower Systems and is the CEO of newsXpress, a marketing group serving innovative newsagents keen to evolve their businesses for a bright future. You can reach him on mark@newsxpress.com.au or 0418 321 338.