Small business groups warn eftpos and BPAY merger could lead to higher merchant fees

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ACCC chair Rod Sims. Source: AAP/Dean Lewins.

Small business groups are urging the competition regulator to block a proposed merger of eftpos, BPAY and the NPP, which they say could result in less payment options and higher merchant fees.

More than ten business associations have expressed their concern in submissions to the Australian Competition and Consumer Commission’s (ACCC) merger review. The groups said the merger will reduce competition, increase the cost of transactions for small businesses, and make least cost routing less accessible. 

The merger is led by the New Payments Platform (NPP), which is owned by 13 financial institutions, including major Australian banks such as CommBank, NAB and Westpac, as well as the Reserve Bank of Australia.

To manage the merger, the NPP set up a subsidiary known as the Industry Committee Administration (ICA), which in March applied to turn BPAY, eftpos and the NPP into the single platform, NewCo. 

The banks behind the proposed amalgamation claim NewCo would improve payment services for businesses and consumers, help Australia have an internationally competitive payments system, and reduce security risks like cyber attacks.

However, the Australian Chamber of Commerce Industry has argued that consolidating three payment services under a single entity could limit options for merchants.

“User choice is an essential feature of an effective payment system, and a move to a single payment platform will risk the level of competition and the costs associated with added complexity to the payment system,” the ACCI said in its submission.

Fears banks will ditch least cost routing

A key concern of business groups is that the NewCo payment platform will eliminate least cost routing, resulting in higher merchant fees for some transactions.

Least cost routing allows businesses to choose which networks tap-and-go payments are sent through on debit cards, allowing businesses to opt for the network that charges the lowest fees.

The National Retail Association has urged the ACCC to reject the merger on the basis that it does nothing to encourage access to least cost routing, which can reduce transaction costs for businesses by as much as 40%.

“Unfortunately, the NRA is of the view that the proposed merger does little or nothing to pursue increasing the availability of LCR,” the NRA said in its submission.

The NRA also argued that the absence of small business representation on the board of the proposed NewCo platform “does little to instill confidence that it would vigorously pursue reform that provides cheaper merchant fees for smaller operators”.

Unless NewCo includes a commitment to least cost routing that is enforceable in the Federal Court, it’s unlikely it will be a protected feature of the system, Rob Nicholls, associate professor in regulation and governance at the University of New South Wales tells SmartCompany.

It’s an issue the ACCC is vetting in its review.

In a statement, the regulator said it disagrees with the ICA — the organisation proposing the merger that’s owned by a collective of major banks — about the importance of least cost routing.

The ACCC said the issue of least cost routing will have a significant bearing on its assessment of how consolidating the three payments systems will affect competition, and the incentives to pursue least cost routing.

The regulator will also consider how allowing the single NewCo entity to own BPAY, eftpos and the NPP would influence competition and choice.

Nicholls says this proposed ownership structure poses a “substantial risk” that some of the payment choices will be taken away.

“It will essentially take away the option of three and replace it with one alternative,” he says.

“Now that may be an oversimplification, but let’s say you’re a retail business, currently you know that there is a difference between the New Payments Platform and the speed with which you get paid and BPAY.”

The ACCC is currently considering the proposed amalgamation and will make its determination in July.

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