Big banks “dragging their heels” on reducing tap-and-go costs for businesses

Australian small business and family enterprise ombudsman Kate Carnell has accused the big banks of “dragging their heels” on reforms that will lower the cost of processing tap-and-go payments for SMEs.

Earlier this year, the big banks promised to reduce fees by letting merchants decide how tap-and-go payments were processed, amid concern businesses were being gouged.

Both ANZ Bank and NAB said they would introduce the new system, known as least-cost routing, by the end of the year, but 20-days out from 2019, Carnell says it’s been crickets.

“There is no doubt the banks are dragging their heels,” Carnell tells SmartCompany.

“This is something they’ve known about for some time.”

While tap-and-go has taken off with consumers, the transactions often flog merchants with higher fees because they often process through Visa and Mastercard networks rather than eftpos.

Merchant fees can be as much as four times higher through Visa and Mastercard networks than via eftpos, according to RBA data.

Average merchant costs on the eftpos network are about 0.26% of a transaction, less than half the 0.58% for Visa and Mastercard.

Least-cost routing lets businesses decide which debit network to process tap-and-go payments through, as customers aren’t selecting themselves as they once did via swipe or insert.

The House of Representatives Standing Committee on Economics recommended earlier this year the major banks adopt the system, following similar calls by the  Productivity Commission and Black Economy Taskforce.

Last year the banks made commitments to change amid an influx of competition from market disruptors such as Tyro, which already has least-cost routing.

Westpac said it would implement the changes next year, which SmartCompany understands will happen before the end of July.

Commonwealth Bank has previously not provided a timeline but told SmartCompany on Tuesday it is “on track” to roll out the new capability by the end of next year.

ANZ said in a statement it was working towards providing customers with a least-cost routing solution in 2019.

“This will give them [merchants] the ability to send transactions through EPAL or current schemes, where it is a contactless transaction and the consumer’s card allows for it,” an ANZ spokesperson said.

NAB is understood to be already rolling out least-cost routing.

Carnell says the slow-burn on implementation has generated a “nice bit of revenue” for the banks, questioning recent post-royal commission comments about rebuilding trust with SMEs.

Australian Retailers Association executive director Russell Zimmerman, who worked closely on drumming up regulator interest in the routing issue, agrees there’s feet-dragging going on.

“Some have said they’ll have it ready by mid-2019. We think that’s a bit slow,” he tells SmartCompany.

Zimmerman, who believes retailers stand to save about $500 million, says the Reserve Bank’s Payments Systems Board is watching the progress of banks “very closely”, referencing remarks it made about cracking the whip if progress wasn’t made in 2018.

“The Reserve Bank will continue to monitor progress in implementing least-cost routing, and the Board may consider regulation if there are signs of material delays to its wide availability to merchants,” the RBA has said.

NOW READ: “A lot more customers”: Why hundreds of businesses are ditching surcharges

NOW READ: Cash is dead, long live cash: The problems with Australia’s digital ecosystem