Independent EFTPOS provider Tyro Payments is pushing for an inquiry by the competition watchdog into why SMEs are paying millions of dollars more than big businesses in transaction fees.
Research by Tyro revealed SMEs are paying around $400 million more than big businesses in fees each year, with the interchange fee on Visa and MasterCard credit or debit card transactions 53 cents per transaction.
In contrast, big businesses pay around 16 cents for the same transaction.
Tyro chief executive Jost Stollmann told SmartCompany SMEs are “under-served and grossly over charged”.
“It’s not the big end of town funding the bank’s increasing profits, it’s the small end of town,” he says.
“SMEs are paying up to 10 times more on card transactions than the big end of town.”
Stollmann published the research as part of Tyro’s submission to the Australian Financial System Inquiry.
Tyro launched in 2003 and since then there’s been very few new entrants in this sector of the market. He says the lack of competition has led to SMEs paying more than they should on credit and debit card transactions.
“It’s just a consequence of this highly concentrated oligopolistic banking structure,” he says.
“The four major banks bundle their products and insinuate all transactions have to go through them and it’s stifling competition.”
In the past five years the annual growth rate in fee income for banks from businesses has increased by 7.9%, reaching $7.3 billion in 2012/13.
At the same time, the amount being paid by households has decreased by 0.6% annually.
SMEs have struggled to pass on these extra costs to consumers, with most needing to remain price competitive.
Tyro wants the ACCC to investigate the “anti-competitive structure and behaviours in the Australian payment space”.
“The Australian Competition and Consumer Commission needs to investigate why Australia’s major banks can treat our small and medium sized businesses with such contempt,” Stollmann says.
Stollmann says the Financial System Inquiry is a one off opportunity to bring Australia up to a competitive international level.
“Australia has lagged behind other Western countries when it comes to encouraging innovation and exploring new technologies,” he says.
“The finance and banking sector has not faced an inquiry of this kind in 16 years, since the Wallis Report. Business and markets have changed significantly from then.”
Tyro has made four key recommendations to the Financial System Inquiry including the ACCC inquiry.
Other suggestions include a review of the Australian government procurement policies and procedures to promote competition and innovation through open panel tendering of payment services and creating an “engaged regulator” to open up the payment system to new regulators, while maintaining market supervision.
Tyro also wants a review of the “overcharging and cross-subsidies” which disadvantage SMEs.
“Australia has seen strong consolidation of the banking industry without new entrants challenging the oligopolistic structures, this very much highlights the need to intensify reforms in the payments space,” Stollmann says.
“It’s ultimately in the best interest of everyone, SMEs, the major retail banks, government bodies, card issuers and merchants to encourage, fund and support innovation and healthy market competition.”