A Half-Pregnant Least Cost Routing Offer

The Australian Retailers Association (ARA) is pleased to acknowledge Australia and New Zealand Bank (ANZ) along with the Westpac bank and its subsidiaries decision to allow retailers and merchants a choice on how Tap and Go debit card transactions are processed.

Currently, ANZ charges retailers around 25 cents to process contactless debit card payments through eftpos, while Visa and Mastercard impose a fee of approximately 1% of the value on a transaction.

Russell Zimmerman, Executive Director of the ARA said, while the bank’s announcement is sound news for retailers and merchants across Australia, there is still a long way to go before those who have higher value average transaction tickets recognise any marginal reductions in costs.

“Contactless payments were first introduced into Australia 13 years ago and since then major banks have automatically routed contactless debit card transactions through higher-cost processing platforms such as Visa and Mastercard, and the extra costs have been borne by retailers and merchants,” Mr Zimmerman said.

“The bank’s approach is a step forward for retailers and merchants across Australia. However, the ARA is disappointed that the banks have only gone halfway by offering merchants an “opt-in model” and not supported “Least Cost Routing” as per the RBA Payments System Board, who have been urging banks to adopt the least cost routing processing platform.”

While the ANZ and Westpac bank’s initiatives are aimed at saving retailers and merchants’ substantial costs, the ARA is unable to comprehend why the major banks have been unable to introduce “Least Cost Routing” to the market.

“Although the ANZ bank has stated that it is committed to working towards “Least Cost Routing” it is difficult to understand why ANZ was unable to achieve this when Tyro, a small acquirer, was able to accomplish this in about 3 months,” Mr Zimmerman said.

“Furthermore, the ARA is perplexed as to why the National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) banks are still silent on this issue. While we understand that both banks’ will be working towards an offering, we would encourage both banks to offer a “Least Cost Routing” and not an opt-in model as a matter of urgency.”

While the ANZ website stipulates that merchants must disclose to customers using a sign at the point of sale, that all contactless Multi Network Debit card transactions are to be routed through a domestic ePal network (i.e. eftpos), the ARA is under the impression that this is an unnecessary measure.

“It is the ARA’s understanding – having had past discussions with the Reserve Bank of Australia (RBA) that the RBA does not require merchants to reveal the way consumers transactions are routed, as it makes no difference to the consumer,” Mr Zimmerman said.

The ARA strongly encourage merchants to consider routing debit transactions via the eftpos network, to secure the vibrancy of the Australian retail industry and the sustainability of the economy.

“eftpos make significant contributions to the vitality of the Australian economy. Therefore, it is imperative that transaction costs are kept low, to ensure eftpos remains a competitive force within the payments system.”

/Public Release. View in full here.