RBA caution banks on ‘tap and go’ routing

The Reserve Bank of Australia has called on banks to make least-cost-routing services more widely available to small businesses.

In her keynote address at the Morgan Stanley Disruption Evolved webcast yesterday, the RBA’s Assistant Governor (Financial Systems) Michelle Bullock said payment patterns had seen large and sudden shifts since the onset of COVID-19.

Signalling the use of cash was continuing to decline in favour of contactless payment options by both consumers and merchants – including via mobile apps and the New Payments Platform, Ms Bullock said the global pandemic had seen cash take a near-instant dive. Withdrawals from ATMs in April were down 30% on March figures, and 40% on April, 2019.

And while the convenience of ‘tap and go’, moves to online shopping and promotion by banks to use mobile payments could result in permanent behaviour shifts for consumers, Ms Bullock warned this would have implications, particularly for small businesses regarding tap-and-go routing fees.

Some businesses, Ms Bullock said, reported the increase in card payments had pushed their own payment costs up, as many card payments are routed through internaitional schemes, such as Visa and Mastercard. Adding many merchants were not being offered least-cost-routing options by their banks.

Ms Bullock warned that while the RBA had not yet mandated that banks offer or promote least-cost-routing, this would be examined in their upcoming Review of Retail Payments Regulation.

“So far, the Bank has not mandated that acquirers explicitly offer least-cost routing to all their merchants. But it remains an option that will be considered in the Review. In the meantime, we are talking with merchants to understand their experience with payment costs through this period,” Ms Bullock said.

“We will also be considering how transparency of the cost of the payment plans offered to merchants could be improved. Ultimately though, if market forces are not generating competition to lower the cost of debit card payments, we may need to consider lowering the benchmarks that serve as a cap on average interchange fees.”

The high costs associated with contactless payments has been an ongoing issue among Australian small businesses. In January four of the top retail associations joined forces to form the ‘Fairer Merchant Fees Alliance’ to call for cheaper merchant fees through a least cost routing system.

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