An emerging advocacy group has kicked off a campaign pushing for revisions to the least-expensive routing regulations that would prevent small to medium enterprises (SMEs) from forking out an additional $1.7 billion in acceptance fees compared to larger retailers on an average yearly basis.
Acceptance costs encompass the various charges and expenses connected with receiving electronic payments for products and services.
Large businesses that process a higher volume of electronic payments compared to SMEs are rewarded by payment processing platforms with discounted acceptance fees.
The Independent Payments Forum Australia (IPF) emerged recently to advocate for the cessation of these discounts by amending the Reserve Banks of Australia’s (RBA) least-expensive routing framework.
RBA’s least expensive routing scheme enables businesses to select the most affordable payment network, like eftpos, Visa, or Mastercard, for processing non-cash transactions.
Brad Kelly, a founding member of IPF, with experience in major banks and electronic payment service providers such as Mastercard, HSBC, and National Australia Bank, highlighted that the higher payment processing costs for SMEs compel them to levy surcharges on consumers to offset the higher acceptance fees.
These supplementary fees place SMEs in a disadvantaged position when competing with larger retail entities amidst a cost-of-living dilemma, he asserted.
“This results in increased expenses for everyone, translated into higher prices for goods and services.
“We believe there is an urgent need to ensure that payment fees and regulations remain equitable and that networks deliver dependable services as cash usage declines.”
Push for least-expensive routing regulation overhaul
When contactless payments were initially introduced almost twenty years ago, major banks automatically directed card transactions through higher-priced payment networks, transferring the extra costs to retailers and merchants.
In response, RBA’s regulatory intervention obliged banks to make payment terminals default to the most cost-effective electronic payment route for the merchant rather than the most profitable for the bank.
However, according to IPF, the ongoing discounted acceptance fees for larger enterprises under RBA’s current least-expensive routing guidelines perpetuate institutional fee discrepancies.
Impacts of SMEs losing $1.7 billion
Annually, SMEs endure an excess payment of $1.7 billion in acceptance fees, according to Kelly.
“Small and medium enterprises are overpaying by more than $1 billion due to the improper implementation of least-cost routing for debit cards by banks and other payment providers.”
Utilizing RBA’s data on acceptance fee expenditures under the prevailing least-expensive routing rules, IPF showcased how smaller merchants are compelled to pay $1.7 billion more than larger businesses on an annual average.
SMEs accounting for less than $10 million in annual transactions occupy 60 percent of the market share.
The total annual value of all transactions (credit and debit cards) currently stands at $1 trillion (covering purchases and cash-outs/advances), amounting to $600 billion in annual transactions for small businesses.
For merchants below $1 million, constituting 22 percent or $220 billion, their expenditure of at least half a percent higher than the above $10 million category equals $1.1 billion in additional fees.
For merchants above $1 million but below $10 million, representing 38 percent of transactions or $380 billion, their fees are a minimum of 0.15 percent higher, translating to $570 million in excess charges.
About Author
