The Reserve Bank has almost demolished the last lines of resistance to debit card reform at major banks, with Commonwealth Bank and National Australia Bank the latest to confirm they are moving to give merchants unfettered access to the low-cost eftpos network for routing contactless payments.
CBA and NAB told Banking Day on Monday night that they were each committed to implementing the Reserve Bank’s reforms, which would allow merchants to have contactless transactions on scheme debit cards processed through eftpos.
Under current industry arrangements all contactless transactions are processed through systems controlled by Visa and Mastercard, which means they attract average merchant service fees of 0.58 percent.
Australian merchants stand to reap savings worth hundreds of millions of dollars on service fees when the RBA reforms are fully implemented because eftpos charges an average merchant service fee of only 0.26 percent on debit card payments.
The opening of the contactless payments market to competition should also remove the pressure on small retailers – caused by the Visa and Mastercard fee structures – to surcharge debit cardholders.
The decisions by CBA and NAB to implement the reforms follow confirmation last month by early movers – ANZ and Westpac – that they would comply with the Reserve Bank’s request.
Business peak bodies led by the Australian Retailers Association (ARA), Master Grocers Australia and the Council of Small Business of Australia (COSBOA) welcomed the banks’ pledges, urging them each to implement the reforms swiftly.
“It has to be a good thing that small businesses are going to be given a choice of which system contactless payments are routed through,” said COSBOA chief executive, Peter Strong.
“The reforms will add greater transparency around the costs that merchants incur for accepting contactless payments.”
While each of the major banks are now singing from the RBA’s song-sheet, a battle is brewing over when the banks should be expected to deliver the cheaper eftpos option to retailers and other merchants.
ANZ told Banking Day last month that it expected to roll out the capability throughout 2018, with small merchants potentially in line to be hooked into the eftpos option towards the end of the year.
However, CBA is not able to commit to a timeframe, arguing that implementing the reforms would require a collectively worked arrangement between the banks.
“We are working on the implementation plan for additional capabilities to be added to our merchant terminal fleet,” a CBA spokesperson said.
“These requirements are complex and demand a collective industry response to ensure a high standard of customer experience for our merchant and cardholder customers.”
The bank did not explain what form the collective industry response should take, but the three other major banks have each indicated to Banking Day that they are focused on upgrading their own merchant terminals to comply with the RBA request.
CBA’s qualified commitment to the reforms probably reflects the reality that it stands to lose the most fee revenue when merchants begin routing contactless payments away from the high cost Visa and Mastercard platforms.
NAB put no riders on its decision, saying that it was already working with some merchants to trial the eftpos capability.
“We’re committed to providing our business customers with choice so they can best manage the cost of accepting payments,” a NAB spokesperson said.
“NAB is working with a number of our merchant customers to provide them with the ability to choose.”
The bank declined to confirm that national pharmaceutical chain Chemist Warehouse was one of the large merchants that would soon be trialling the eftpos capability.
NAB sources, who requested anonymity, told Banking Day that the bank’s decision to commit to the RBA’s agenda had been complicated by a ten-year strategic arrangement entered into with Visa in 2015.
It has been suggested that the key performance indicators of staff working in NAB’s card issuing business are partly tied to benchmarks contained in the Visa agreement.
This could mean that having to forego fee revenue under the reforms might affect NAB disproportionately, compared to the other banks.
Opening of competition in contactless payments are almost certain to deliver revenue hits to the big global card schemes.
The effectiveness of the RBA’s measures might depend on the strategic responses of Mastercard and Visa to protect their market positions.
However, each scheme will need to ensure that such action does not contravene Australia’s competition laws.
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