A federal government review has demanded the banks give merchants and customers more options when using tap-and-go payments, but one small business owner says the lack of choice between credit and debit for purchases is only one part of the challenge for SMEs.
The House of Representatives Standing Committee on Economics report into the big four banks, released this month, has recommended financial institutions be compelled to give merchants and shoppers the choice of whether a purchase made by waving their card in front of a reader be charged as credit or debit.
The report says customers should have the choice, rather than this being decided for them by the banks, but the small business community has highlighted that there’s plenty of work still to do to level the playing field when it comes to easy payment technologies in Australia.
So what are the key points of contention? Here’s what you need to know.
The status quo and the recommendation
According to the standing committee’s report, in 2015, 63% of debit cards issued in Australia were “dual network”, meaning they processed debit or credit options for customers, depending on their selection at a payments terminal.
However, the tap-and-go systems issued by banks to merchants don’t give the option of selecting an account type, and instead default to credit card purchases. These types of payments are more expensive for businesses to process than debit card purchases and the committee report questions whether the banks’ payments technology really has the customer and merchant in mind.
“At present, banks do not allow merchants to choose the route through which tap-and-go payments are processed … It is likely that banks deny merchants this choice for commercial reasons,” the report suggests.
As of September 2017, the average cost to a merchant of processing an Eftpos transaction in Australia was 0.26%, while a credit card purchase facilitated by Mastercard or Visa was 0.58%, according to RBA data cited in the report.
On Monday, Small Business Ombudsman Kate Carnell said the fees are higher for small businesses, which don’t have the bargaining power to get “special deals” on processing fees like bigger businesses can.
The committee’s recommendation is that from April 2018, the banks will have to let merchants choose which payment type (credit or debit) occurs when a customer taps a card. A customer should be able to change this if they wish at the point of sale. The committee’s suggests the Payment Systems Board should consider regulatory action after April next year to make sure the banks are compliant.
The small business owner view
Tim White is the co-owner of Melbourne bookshop Books for Cooks. He says over the past two years there has been a rapid uptick in demand for contactless payment technologies among shoppers, but the transparency about what each of these transactions actually cost a business is lacking.
“The ability to determine the fees at the point of sale is not possible at the moment,” he tells SmartCompany.
“The fact that retailers are charged a higher fees [for credit] compared with Eftpos is galling.”
He says his business pays double the processing fee when a customer chooses credit compared with Eftpos, but when a customer taps their card it’s impossible to know exactly what it will cost the business, because some cards carry higher fees, like so-called “premium” or branded cards.
“Banks as a general rule charge a matrix of prices — if you’re an independent retailer who doesn’t have the benefit of a buyers’ association, you’ll be paying significantly higher for these. You’ll find there is a lot of smoke and mirrors though, and it’s not clear what fees you are going to incur,” he says.
Beyond simply giving customers the option or credit or debit with tap-and-go payments, White says there’s a need for smarter technology that makes it easier for businesses to know what surcharges to pass on.
Small operators have to take great care that they don’t breach laws on excessive credit card surcharges, but given the banks only give businesses details of what it cost to process payments in a report that is three months in arrears, it’s difficult to have a standard surcharge at the point of sale.
“From a retailer’s point of view, simplicity and transparency are important, but they should be at the point of sale,” White says.
The customer already has the choice to pay by credit or Eftpos when they insert their cards, he says.
“The customer can choose already. The issue for us is the fee side of things.”
What the banks say
The banks have been largely tight-lipped on how credit card fees are calculated, but on the topic of changing tap-and-go systems to give more options, they say this could be a long-term project.
“We understand some merchants may want to elect which network they want transactions to be routed through, and we are currently building capability to enable this,” a spokesperson for NAB told SmartCompany this morning.
“However, we do believe it’s important that the industry work together on this change, to ensure cardholders don’t have inconsistent and confusing experiences between different merchants and card product types, and to maintain the security and integrity of the payments system.”
A spokesperson for the Commonwealth Bank told SmartCompany the bank is in the process of “assessing the implementation of additional capabilities to be added to our merchant terminal fleet”.
“These requirements demand a collective industry response to ensure a high standard of customer experience for our merchant and cardholder customers,” they said.
A Westpac spokesperson also said the bank is looking at providing this functionality into the future, saying: “Now that EFTPOS can handle tap-and-pay, our teams are reviewing our capability to deliver this choice to our merchants in the future, and we are also starting to issue EFTPOS cards with this functionality.”
SmartCompany contacted ANZ but did not receive a response prior to publication.