CBA automates least cost routing for small business merchants

Commonwealth Bank has become the first of the major banks to commit to automatically routing transactions for small business merchants, weeks after Treasurer Josh Frydenberg said more needs to be done to lower transaction costs for small businesses. 

On Thursday, CBA said it would seek to “take the hassle out” of least cost routing for small businesses by automatically routing transactions between eftpos and international payment schemes in the most cost effective way for eligible merchants, following “overwhelming feedback” from small business customers that they don’t want to have to manage routing transactions themselves.

However, while the move has been welcomed by small business advocates, concerns have also been raised that small businesses may still be left with little say in the matter. 

Least cost routing, or merchant-choice routing, gives businesses choice over which debit network they process tap-and-go payments through, as fewer customers now swipe or insert cards and make that choice themselves. 

Australian merchants often find themselves being forced to pay high fees if tap-and-go payments are processed through Visa and Mastercard instead of eftpos, with the Reserve Bank previously finding that merchant fees can be as much as four times higher through Visa and Mastercard networks than eftpos. 

While the big four banks have implemented least cost routing programs since 2018, industry groups have consistently called for more to be done to ensure small businesses avoid paying unnecessarily high fees. 

At the same time, small business groups had also voiced concerns that the merger of eftpos, BPAY and the New Payments Platform, now approved by the Australian Competition and Consumer Commission, could lead banks to neglect least cost routing, claims which were refuted by the committee behind the merger. 

Earlier this month, Treasurer Josh Frydenberg urged the Reserve Bank’s Payment System Board to mandate both least cost routing and the issuing of dual-network debit cards by major and medium-sized banks to ensure that banks cannot provide cards that only offer Visa and Mastercard payment options. 

“The Morrison government is committed to lowering costs for small business through the implementation of least cost routing in the debit card market,” he said at the time. 

CBA’s move to automate least cost routing was welcomed by Australian Small Business and Family Enterprise Ombudsman Bruce Billson, who said it shows the bank is listening to the small business community. 

However, Billson emphasised that there is still work to be done in this area and urged “all banks and financial institutions to address this critical issue”.

Alexi Boyd, chief executive of the Council of Small Business Organisations Australia, also welcomed CBA’s commitment to least cost routing, but told SmartCompany COSBOA wants to ensure that small business owners retain control over decisions affecting their businesses. 

A spokesperson for ANZ confirmed to SmartCompany that the bank offers least cost routing to its merchants to allow them to choose the right payment system for their business, while NAB said its small business customers can also elect to use merchant-choice routing, with or without limits. Westpac customers have also been able to opt-in to use merchant-choice routing on Westpac-owned terminals since 2019. 

The pandemic has seen the use of tap-and-go payments increase dramatically, said Billson, and the ongoing effects of lockdowns means it’s critical that SMEs have access to the lowest possible transaction costs from banks and other providers. 

“Many small businesses and family enterprises already operating on tight margins and battling the disruption to their businesses caused by COVID-19 can’t afford the added burden of paying higher than necessary fees for their financial transactions,” he said. 

“The cost of these higher and hidden charges across the economy is many millions of dollars — money that could be better put to work to grow business and employment prospects.”

CBA also announced on Thursday that it will be lowering its rates for all in-store and online payment transactions for eligible merchants, offering a rate of 1.1% for in-store card transactions and 1.5% for online transactions, regardless of the interchange rate or type of card. 

The bank said it will also be waiving $7 million worth of terminal rental fees for more than 50,000 customers between now and Christmas for businesses affected by the COVID-19 pandemic, which Billson described as a “terrific early Christmas present”.