Strong Government and RBA support for Least-Cost Routing

The Fairer Merchant Fees Alliance has welcomed the Federal Government and Reserve Bank of Australia’s strong support for the rapid introduction of a fairer debit card fee system.

At a time when COVID-19 has negatively impacted thousands of merchants across the country, the need for a system known as Least-Cost Routing (LCR) has never been stronger.

LCR effectively gives merchants the ability to route a ‘tap and go’ debit card payment through the network with the lowest fees, saving them money in an era where every dollar counts.

Senator Michaelia Cash, Federal Minister for Employment, Skills, Small and Family Business, told an industry conference late last week that she supported the RBA call for merchants to be given the option of least-cost routing, and encouraged Australia’s largest banks to clearly offer the choice.

She added: “Many small businesses have found that the cost of their merchant fees have now actually risen during COVID-19 as customers have swapped to contactless payments, and business owners are either unaware of or have not been offered the use and the option of least-cost routing.”

Her statements follow a recent significant keynote address by RBA Assistant Governor Michele Bullock, who said:

“Least-cost routing puts some power into the hands of merchants by providing them the ability to route a dual-network debit card transaction through the network that costs them the least to accept. In Australia, for many merchants, this is the eftpos network.”

“While least-cost routing has been available for a couple of years, it has not been widely promoted by the major banks which account for most of the acquiring market in Australia.”

“With many customers switching to contactless in response to COVID-19, some merchants are finding their payment costs rise as debit card payments are automatically routed through the international schemes. It is therefore important that merchants be given the option of least-cost routing.”

The FMFA also encourages LCR in the online and digital space, and recognises the RBA’s support for lower fees in this area of payments, with Ms Bullock saying:

“If banks or other stakeholders are acting in ways that prevent downward pressure on merchant fees, we may need to consider regulatory options for keeping the cost of electronic payments low.”

Ms Bullock’s comments echo those recently made by Small Business Commissioner Kate Carnell, who said:

“The banks need to do the right thing by Australian small businesses in this economic crisis and deliver least-cost routing as a universal service.”

The FMFA comprises four of Australia’s leading retail associations – the Australian Convenience and Petroleum Marketers Association (ACAPMA), the Australian Retailers Association (ARA), the Council of Small Business Australia (COSBOA) and Master Grocers Australia (MGA).

The members are calling on the major banks to help struggling merchants, and wish to work constructively with these large financial institutions to implement LCR as a matter of urgency.

Click here to read the full press release by the Fairer Merchant Fees Alliance, or read our article on least-cost routing for further information on the topic.


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