Open letter from business organisations seeking urgent action on debit payments

Ten industry associations representing Australian SMEs have come together to pen this open letter to the federal government, demanding urgent action be taken to avoid higher transaction costs for Australian retailers. The letter is in response to the Reserve Bank of Australia (RBA) examining whether medium and smaller banks should be able to issue debits cards with one payment scheme on them, instead of two, such as Visa and eftpos. 

Australia’s debit payments system is at a critical juncture, and we need urgent action so hundreds of thousands of businesses do not face the cost burden of higher transaction fees in-store and online. 

Debit is by far Australians’ preferred means of transacting, using tap-and-go cards and increasingly mobile wallets. Fees for these debit transactions are incurred by merchants, making it imperative that there is maximum competition in the debit payments market to drive down business costs.  

Least cost routing (LCR) enables merchants to choose the lowest cost debit fee offering — usually eftpos — to minimise their costs. This is hardly novel. In other essential business services like energy and telecommunications, providers are expected to offer customers a default low-cost option.  

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The introduction of LCR in Australia has been tortuous, with a raft of obstacles slowing its rollout and uptake. Now new barriers are being erected that put at risk the progress to date and would make it near impossible to access LCR in the growing mobile wallets and online channels. 

These new barriers include:  

• Moving from multi-network debit cards (MNDCs) — which are necessary for LCR — to single network debit cards (SNDCs) using international schemes, whose fees are usually higher;
• Failure to enable LCR in mobile wallets, which is available in other markets, for what is an increasingly common form of payment in Australia; and
• New rules and fees that make it harder to access LCR in online payment channels. 

This is on top of a total lack of transparency in merchant fees and concerns about the tying of credit and debit fee offerings, resulting in a recent court enforceable undertaking by Visa.  

In its recent Retail Payments Regulatory Review consultation report, the Reserve Bank of Australia makes clear that “a widespread shift towards SNDCs could threaten the viability of LCR” and that if eftpos cannot compete and potentially has to exit the market, this “would result in a significant lessening of competitive pressure in the debit market and would likely result in an increase  in both interchange rates and scheme fees, impacting all merchants”.  

Australia’s merchants, the vast majority of which are small businesses, cannot afford to pay higher fees for their debit transactions. Urgent regulatory action is needed in three areas: 

• Multi-network debit cards (MNDCs) are mandatory as part of every bank’s social obligation to promote competition in Australia;
• Least cost routing (LCR) is made available as the default option for all merchants in all payment channels, including tap-and-go, mobile wallets and online transactions; and
• Full transparency of merchant fees.

High debit transaction fees ultimately hurt all Australians, with small and family businesses and poor and disadvantaged consumers impacted the most. 

As the national representatives of Australian merchants and small businesses, we will continue advocating until the necessary regulatory action is taken to address this critical issue.  

We look forward to receiving your support. 

Yours sincerely, 

Theo Foukkare, CEO, Australasian Association of Convenience Stores

Mark McKenzie, CEO, Australasian Convenience and Petroleum Marketers Association

Ben Kearney, CEO, Australian Lottery and Newsagents Association

Paul Zahra, CEO, Australian Retailers Association

Mary Aldred, CEO, Franchise Council of Australia

Alexi Boyd, interim CEO, Council of Small Business Organisations Australia

Jos de Bruin, CEO, Master Grocers Australia 

Wes Lambert, CEO, Restaurant & Catering Australia 

Dominque Lamb, CEO, National Retailers Association

Suzanne Greenwood, executive director, Pharmacy Guild of Australia