merchant fees

TRANSCRIPT: Merchant transaction fees (least-cost routing); regional bank branch closures

Emily Carter — Fri, 22 Mar 2024 04:18:24 +0000

TRANSCRIPT: Merchant transaction fees (least-cost routing); regional bank branch closures Emily Carter Fri, 03/22/2024 - 15:18

19 March 2024

TRANSCRIPT

Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson interview with Eddie Williams.

ABC Radio South East NSW

Subjects: Merchant transaction fees (least-cost routing); regional bank branch closures

Eddie Williams

It can be a point of frustration when you're paying for a coffee or grabbing a meal. You go to pay by card and you find that you're slugged a surcharge. You're paying more than you thought you might have been. So, what's the reason for these charges when you tap-and-go? And is there a way to reduce the burden both on the small business taking the payment and you, the customer, paying for your long black?

Bruce Billson is the Australian �Թ�� and Family Enterprise Ombudsman. Bruce, good morning.

Bruce Billson

Great to be with you, Eddie and your south-coast listeners.

Eddie Williams

Where does this fee, this surcharge, come from?

Bruce Billson

Well, it comes from a number of places. It's quite interesting. The convenience of just tapping and going for a customer, you think that's pretty easy, I'm done now, I've paid and I'm off to my next thing. But what actually happens in the background is there's an interplay between the financial institution that you bank with, who the card or payment facility is provided by, and then the impact of the merchant, the business that's supplying the goods and service where they're at in that process. So, there's quite a quite a few moving parts going on in the background, and that's what can give rise to charges that will end up being put onto the merchant and in some cases are then passed on to the customer.

Eddie Williams

What sort of burden does all this put on small business?

Bruce Billson

Well, across the economy, our research has pointed to $800 million of additional costs that don't need to be borne. And in more recent Reserve Bank reporting, they're pointing to it being nearer to $1 billion. That is because people are using payment processes that aren't the cheapest that's available for their transaction.

They're paying for the use of some international cards that have got certain fee structures attached to them that may be passed on instead of what would be a lesser cost routing option that lets you use a cheaper alternative. And those add up to a big number, $800 million to $1 billion worth of extra charges.

And because it's so tough at the moment on small and family businesses that are already having margin squeezes from their input costs going up, just like households have with cost-of-living pressures. Many are in no place to keep absorbing those costs and they'll pass them through to the customers as a surcharge.

Eddie Williams

Least-cost routing. How do you make it happen across the board?

Bruce Billson

Well, that's the frustrating thing and that's why we've had a bit to say about it. Least-cost routing is available to the vast majority of merchants or businesses that are receiving cards or even online transactions where the card might not be present and you simply pump in your card details and your security number and away you go. There is a way in which those payments can and, in our argument, should be routed through the least-cost payment process so that the merchant and the customer are getting that benefit.

Instead, some of that least-cost routing functionality is not always activated and therefore businesses are busy trying to delight customers, not realising there is a cheaper way of having those payments concluded. Saving money for themselves in terms of costs of running the business and saving customers as well, where there might be a surcharging alternative.

We're urging the banks that are really central to this, they're the ones that have got the relationship with those small and family businesses, to really lean in and say to those businesses, look, you know, there are cheaper alternatives available for you. Let's get alongside you to activate those. That's in the interests of the business. And the business would see their bank as an ally in their success. And it's also in the interests of consumers.

Eddie Williams

So, is the onus on the banks? Can government mandate this? Where does the responsibility lie?

Bruce Billson

Well, there's a couple of things. This is where it gets kind of tricky. There's something called the Payment Systems Board, which sits under the Reserve Bank. They've got some capacity to influence what goes on. We've been basically saying, strong words for the banks to lean in and get on with this hasn't proven to be successful to date. That's why we're urging for a stronger mandate, you know, some specific timeframes.

Some of our banks that advertise that they're big supporters of small and family businesses are sitting back, not letting those businesses know there is a cheaper way for them to run their business in terms of receiving payments from their customers.

We're saying, come on, you should be looking out for those businesses that rely on that banking relationship and leaning in and helping them out. That's been a glacial process. It's been so slow. We think that's probably because those financial institutions, you know, get a bonus if certain amount of payment values are pushed through those international card providers.

It's a bit like you and I owning a toll road and a sat nav technology and it doesn't matter where you want to go, it pushes you down the toll road through our sat nav. We just don’t think that’s very cool. It's not helpful for the business and certainly not in the interests of consumers. And it's way past time where the banks have been and should have been actively seeking to change that. So that lease-cost routing is activated wherever it's available.

Eddie Williams

You’re hearing from Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson on ABC South East. On the topic of banks, the NAB branch at Moruya is going to permanently close in June. NAB at Narooma closed a year or two back. You've made a submission to the federal inquiry that's looking at regional branch closures at the moment. What's the impact on small business when you have these regional closures?

Bruce Billson

It's absolutely devastating, and I guess the part of it that's most galling for small and family businesses is they've been wooed to be customers of these financial institutions with them saying, look, we're going to be a great ally, we’re your partner in your business, and then they rack off and shut the branch.

That's just not satisfactory. And what it means is for those that need to deposit large amounts of cash, even obtain cash so that they can meet the needs of their customers. And tailored banking services. We all know running a business and thinking about a cash flow loan or working capital loan for your business requires you dealing with a banker that knows something about your business and something about the market in which you operate. And so many of those aspects are lost when the branches are closed.

One of the things that we've been calling for is a more serious bank closure protocol. At the moment the banks basically signal that they're going to close the branch. They tell the local council and a few others, and then they rack off.

We say if this is really about consultation, why not identify that it's being considered and say to the local business and small businesses and regular community, unless more foot traffic comes through, unless the banking services of the local water authority or the council is met through our services, we might close. You’ve then got a chance to actually do something about it and say to the banks, well, what are you going to do to maintain the level of service and the features and the customer care that were the basis that you wooed us to be customers. What are you going to do to meet that ongoing requirement going forward? Because it's not like that need disappears.

That's the sorts of things that we've been raising with the Senate committee about a more fair dinkum process of consultation, a more genuine opportunity for impacted communities to adjust, maybe change behaviour to see that branch continue. And a more serious attempt to make sure the customers aren't disadvantaged as a result of that bank closures with proper contingency arrangements, proper plans to make sure services can be maintained in the event they proceed with the bank closure.

Eddie Williams

Bruce Billson, good to talk to you this morning

Bruce Billson

Fab to be with you. Take care. Have a great day.

Eddie Williams

Bruce Billson, the Australian �Թ�� and Family Enterprise Ombudsman. That proposal around least-cost routing and how to reduce that burden on the tap-and-go surcharge on small businesses and therefore on you as the customer as well.

TRANSCRIPT: Merchant transaction fees (least-cost routing)

Emily Carter — Fri, 22 Mar 2024 04:15:07 +0000

TRANSCRIPT: Merchant transaction fees (least-cost routing) Emily Carter Fri, 03/22/2024 - 15:15

18 March 2024

TRANSCRIPT

Australian �Թ�� and Family Enterprise Ombudsman Bruce Billson interview with Leon Delaney.

2CC Radio Canberra

Subject: Merchant transaction fees (least-cost routing)

Leon Delaney

The Australian �Թ�� and Family Enterprise Ombudsman, Bruce Billson, says mandating something called least-cost routing could stop banks from overcharging for things like tap-and-go payments and other forms of electronic payment. And that would save both small businesses and consumers. There's more to this story than meets the eye. So, let's go straight to the source. The �Թ�� and Family Enterprise Ombudsman Bruce Billson. Good afternoon.

Bruce Billson

Leon, great to be with you and the Capital listeners.

Leon Delaney

Thanks very much for joining us today. Now when I go and pick up my pizza on half-price Tuesday and I get my premium pizza for $9.50 because it's half price and then I tap-and-go, I find it still costs me over ten bucks. How did that happen?

Bruce Billson

A couple of moving parts there. And this is one of the great mysteries we're trying to reveal. There's a whole relationship between the card providers, so think of Visa, MasterCard, American Express, EFTPOS and the like, and to execute the payment they put a charge on and then there's the bank that's issued the card and there's a little clip for them as well, and a number of other moving parts.

It all amounts to a charge that goes to the merchant, being the business that's supplying the goods and services, who may either choose to absorb that cost or pass it on to the customer as a surcharge. Now, the thing that we're quite concerned about is too often that payment is routed down a more costly option than one that's readily available, and we just don't think that's cool.

Leon Delaney

Okay, before we get into the intricacies of that particular mechanism, why should customers have to pay a surcharge at all? Before businesses started accepting electronic payments, they accepted payment in cash. Now handling cash comes with a cost - the cost of the time that it takes to manage the cash, to hold the cash, to transport the cash to the bank and back from the bank. That is an overhead of the business. Now, if I'm paying electronically, I save the business all that time and trouble. Why should I have to pay their fee?

Bruce Billson

Good argument. A couple of things are in that, though. One is that the handling and receipt of cash of itself doesn't trigger a charge to the business. So that's one point of difference. And secondly, in the world that we're in now, different cards have different charges attached to them. And the law allows a merchant to recover the actual cost or thereabouts of that charge. So, when you're not being billed an amount for cash, that's why you don't see much. And all that cash handling process that you're talking about is embedded in the price of the goods and service that you're buying.

Leon Delaney

So should be the transaction fee. It should be an overhead of business.

Bruce Billson

And in many cases, it still is Leon, but not in every case. And that's what we're seeing in the popping up of these surcharges. And I'm trying not to use brands, but there's a particular card that's much more expensive to the business that's accepting it, and in many cases they will charge a surcharge or suggest they won't receive that card at all.

For other transactions, I'll give you an example. For other transactions, a $20 pizza and garlic bread combo, might be cheaper on one form of card that is a percentage of the sale price, whereas another card might charge you as a fixed price for the transaction.

So that fixed price per transaction looks pretty good when you're paying for a $150 dining experience or something more expensive. But it looks really expensive if you've got a small amount of payment to be made. And that's why we're arguing the banks have the capability in most cases to direct it down the least expensive payment pathway, and they should. But they don't in all the cases and that's why there's between $800 million and $1 billion a year of extra charges in the system that either the business, and in many cases the customer, end up paying when they shouldn't have to.

Leon Delaney

So, these are the intricacies that I was referring to before. When I present my card, I've got no way of knowing which avenue the funds will actually take when they transfer from my bank to the business bank. They could be going offshore somewhere. For all I know, they could be going anywhere and passing through all sorts of gateways. So, this least-cost routing system, how does that work? Does that just guarantee that the smallest possible fee is the one that gets charged?

Bruce Billson

Pretty much that’s it. You’ve nailed it right on the head. I use that example about transactions that are more expensive and in some of those cases a fixed price per transaction might look pretty attractive. But for a smaller, you know, $5 payment that fixed charge, looks mighty expensive. Whereas in other examples it might be a percentage of the transaction price. Now that looks pretty nice when the numbers aren't that big, but when you get to a larger transaction, like paying for your car maintenance service or something like that, that can be a pretty big number.

Now what we're saying is in most cases, the banks and, let's call them the appliances, the terminals that they use, have functionality that can choose the one that is least expensive. And we're saying it should do so.

And even when you're buying something online where you're entering in your card details - sorry for the jargon that’s ‘card not present’ as in your not waiving the card, you’re entering details into a digital platform and an e-commerce sale - even in those cases you can’t always be certain it’s going to be routed down the payment pathway that’s least expensive to the merchant and as a result least expensive to you as the consumer.

Leon Delaney

Now the business operator has no clue what avenue the payment is taking either do they? This is completely under the control of the banks, isn't it?

Bruce Billson

And this is where we are a little frustrated because the banks say, this least-cost routing thing, it's available, it's not our fault the merchants haven't taken it up. And what we've said is, hang on a minute. The merchants are busy doing what they do to delight their customers. The intricacy of these sorts of things, surely you should explain that to the merchant as part of the service that you're trying to provide and explain to them what the options are and how to activate them.

In about half of the occasions where a least-cost routing option is available, it hasn't been activated because the merchants are too busy trying to pay the bills and, you know, keep their head above water. And the banks have been less than enthusiastic in explaining the options available to them and then helping them to activate them.

Leon Delaney

It's one thing for you to make a call for the banks to do the right thing. Are you also going to lobby the government to legislate for them to do the right thing?

Bruce Billson

We have and we are and we will continue to do so.

A couple of things have come up. There's been a big payment system review where the Payments Board of the Reserve Bank aren't sure whether they've got jurisdiction over electronic wallets and these sorts of things.

So to the (Reserve) Bank's credit, they've said we're going to clarify all that with reforms that try and keep pace with the changes in the economy and new ways of paying things like waiving your phone rather than the card and should that necessarily be routed down Apple Pay or should you have other options, as an example.

And the Reserve Bank with that strength and clarity of their role and function, we're hoping they do a little bit more than just send strongly worded letters to the banks saying please do the right thing. And we're urging them to get up and about and on-their-bikes and really pressing for this to be done sooner rather than later.

Leon Delaney

Indeed. And if it makes my Tuesday night pizza just that little bit cheaper, I'm all in favour. Thanks very much for chatting today.

Bruce Billson

Great to chat with you Leon and take care.

Leon Delaney

Bruce Billson, the Australian �Թ�� and Family Enterprise Ombudsman.