RBA’s decision on Least Cost Routing falls short of industry expectations

The Reserve Bank of Australia (RBA) has completed its Review of Retail Payments Regulation and decided to not mandate Least Cost Routing (LCR).

Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS), said the RBA’s decision is extremely disappointing.

“The RBA announcement falls very far short of mandating LCR to give small businesses relief in merchant fees. In many ways, it is the same as where we are today which is extremely disappointing. There are some small improvements in the areas of mobile payments and the application of the dual network debit card requirements for banks, however there is essentially no structural change.”

AACS has been advocating for LCR for the past four years alongside a group of 12 other industry bodies, and Foukkare said it feels like the RBA has not listened to them or the small businesses in need of protection from exploding merchant fees.

“Based on the report considerations, the only way forward now is for the Federal Government to get directly involved and effectively mandate LCR for all forms of payment, ultimately providing small business with the security that they have been screaming out for.”

Bruce Billson, Australian Small Business and Family Enterprise Omdudsman, said small business owners and leaders have every right to be frustrated by the RBA review.

“More decisive action is urgently needed to stop small businesses and family enterprises paying more than they need to for payment services. For too long, small businesses have been slugged with unnecessarily high fees from credit card networks, when there is a cheaper option.

“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.”

A recent study by global payments consultancy, CMSPI, found that just 18 per cent of current transactions are routable and less than eight per cent of these are actually being routed, resulting in $67 million in avoidable merchant fees paid for the month of August alone.

Alexi Boyd, CEO, Council of Small Business Organisations Australia, said these numbers are why regulation is needed to mandate LCR as the default.

“Our members are telling us that the banks have been slow to make least cost routing accessible. There is still complexity around merchant fees and the opaque nature of the fee structures make requesting least cost routing or shopping around nearly impossible for the small business person.”

Due to the growing use of ‘tap-and-go’ payments, consumers are no longer using the keypad and choosing the lower-cost eftpos network with most payments defaulting to the international network, meaning higher costs for the merchant.

“Unfortunately, over the last decade, global card schemes like Mastercard and Visa have increased their share of the market in many countries, even completely wiping out the domestic card schemes in Ireland, the Netherlands, and beyond. We can’t let that happen in Australia. The CMSPI study illustrates how regulation mandating MNDCS in the USA has prevented the international schemes from overtaking their market,” said Boyd.

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