Payments – Australian experts air concerns about RBA reforms

Australia’s payment regulator the RBA announced Friday 28th May a set of ‘preliminary’ decisions. The Banking Day pce below shares views of payment experts -

Australian Retail Payments Background

Australian’s use 70 million cards with $712 billion annual spend.

The ‘digital’ National Payment Platform (NPP) $585 billion.

Cash including ATMs $112 billion.

BNPL $9 billion and cheques $6 billion.

The RBA Decisions Announced

1. Dual Network Cards: The RBA expects major banks to keep issuing dual network cards, while interchange (i.e. wholesale price mechanism) will be reduced on single issuer cards in attempt to discourage use.

 2. Least Cost Routing (LCR): The RBA expects issuers to follow a set of ‘principles’ for high street transactions, but will not regulate as it “does not see a need for explicit regulatory requirements regarding the provision of LCR at this stage.”

Meanwhile in the online world the RBA “supports the provision of LCR online, it seems too early for formal intervention in the device-not-present”

 3. Interchange Pricing: The interchange rate for all card payments has long been the target of global regulators and RBA is no different.

The RBA has not moved its weighted interchange average from 0.50% for credit cards and 0.08 cents for debit/prepaid cards. Enforced is by an arbitrary ‘cap’ of 0.80% for credit cards and 0.15 cents or 20% for debit/prepaid cards – there are exemptions e.g. corporate/purchasing cards and other fees.

The RBA has signalled it wanted interchange to reduce further. 

“interchange fees should generally be as low as possible”

Interchange fees “can result in smaller merchants facing unreasonably high costs for some low-value transactions”

The RBA proposes a possible move in the dual network debit cap from 0.15 cents to 0.10 cents and single debit cards to 0.06 cents in an attempt to stamp out and discourage single issue cards.

 4. Scheme Fees: Twenty years after regulating interchange reduction the RBA seems to have discovered they do not get all the data they need from banks, issuers and Visa and MasterCard.

The RBA is now suggesting they get access to “scheme fee schedules and all scheme rules, and to notify the (RBA) Bank promptly of any changes”

 5. BNPL Surcharging: Currently BNPL apps can enforce no surcharging contracts on merchants. They currently are the only payment type allowed by the RBA to do this.

The RBA states BNPL is ‘innovative’ but is so small it should not be regulated…. yet – a decision announced December 2020.

The RBA has always maintaining it requires consistency and is most concerned about the impact of price on small business – BNPL charge 4-6% on transactions which is the highest charge by payment type by a massive margin.

 6. Digital Wallets: The RBA states no decision has been made on digital wallet regulation – despite the fact this is the fastest growing sector of the payment system.

Payments experts air concerns about RBA reform proposals

BANKING DAY George Lekakis June 1st

Payments experts and small business groups have delivered mixed responses to the findings of the Reserve Bank’s retail payments review, characterising some of the proposed reforms as potentially inconsistent or “too modest”.

Mark McKenzie, the chair of COSBOA - the country’s peak small business body – panned the RBA for not proposing reforms that would require banks to improve the transparency of fees collected from retailers and other merchants.

Even though the RBA found that so-called “scheme fees” passed on to retailers by banks were opaque, the regulator baulked at introducing reforms to improve disclosure.

“We’re very disappointed about the meagre nature of the reforms canvassed in the RBA’s consultation paper,” McKenzie said.

“It amounts to an abrogation of the RBA’s responsibility to deliver pricing transparency in relation to the merchant fees that banks impose on all small businesses.”

Sydney-based payments consultant Bradford Kelly believes the RBA’s consultation paper signals it plans to make no meaningful reforms to the payments system.

He is critical of the regulator’s decision to allow buy now pay later providers to continue preventing merchants from surcharging customers for accepting payment through services such as Afterpay and Zip.

BNPL providers charge merchants at least 4 per cent of the value of purchases made through their platforms.

“The RBA made surcharging a big issue for card schemes twenty years ago,” he said.

“Today a retailer can surcharge for the cheapest payment method but not the most expensive.”

Kelly characterised the reform agenda flowing from the review as a “nothing burger”.

“If the RBA was a fast food joint this report would be the menu item called ‘nothing burger’,” he said.

Grant Halverson, the principal of Melbourne-based payments consultancy McLean Roche, said he was puzzled by many of the preliminary findings of the review.

He said the findings published in the consultation paper might indicate that the Morrison Government had a hand in shaping the RBA’s reform agenda.

“The paper looks to have the fingerprints of the government all over it,” he said.

“The RBA might have formed a view that the current political environment would not be supportive of any meaningful reforms.”

Halverson said the lack of meaningful regulatory action on least cost routing was cause for concern.

“The RBA does not see a need to regulate to increase provision of least cost routing for high-street transactions or online,” he said.

“This is a totally baffling decision because without regulation payment providers will continue to drag their feet with least cost routing rollouts.”

Halverson also believes the lowering of the interchange cap on single network debit cards will do little to discourage non-major banks from dropping eftpos functionality on debit products.

Michael Swannell, the managing director of Brisbane-based KeyOne Consulting indicated he had some concerns about the RBA’s proposal to allow only non-major banks to issue single-network debit cards.

“The RBA has a strong preference for multi-network debit cards,” he said.

“My view is that the market should be allowed to speak.

“If there is a principle to preserve then so be it, but why are some providers allowed to issue single-network debit cards and others aren’t?”