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Major banks ‘feeding’ off small businesses, says Ombudsman

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Annie Kane 6 minute read

The Australian Small Business and Family Enterprise Ombudsman has said she is concerned that major banks have been too slow to reduce the cost of tap-and-go payments for businesses.

Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), noted this week that the major banks have not implemented the least-cost routing of their tap-and-go payments for debit cards, “despite promises” to do so.

Currently, the average total merchant fee for a debit transaction is 0.26 per cent with eftpos and 0.58 per cent for Visa or Mastercard. However, Ms Carnell noted that the costs were higher for small businesses.

The House of Representatives standing committee on economics recommended banks introduce this by 1 April 2018, and the Productivity Commission and Black Economy Taskforce have both issued similar recommendations.


However, Ms Carnell noted that “we are still waiting for any action”.

She commented: “The National Australia Bank and ANZ promised to roll out the changes this year, and here we are with just 20 days left of 2018 and no action.

“The Commonwealth Bank of Australia committed to the changes but didn’t give a timeline.

“At least Westpac confirmed it will offer least-cost routing to its business customers in 2019, but it did not confirm if it will happen in the first or second half of the year.”

The ASBFEO suggested that the delay in rolling out the least-cost routing had generated “a nice bit of revenue for the banks over the last nine months” and said it was “another example of their pursuit of profit”.


“We need to see some action by the banks, who still need to rebuild trust and confidence with Australian small businesses,” Ms Carnell said.

The least-cost routing has in focus with politicians and the monetary authority recently.

In its payments system board annual report for 2018, the Reserve Bank of Australia (RBA) noted: “It is important that electronic payments are secure and low cost and that merchants and consumers have choice. Over the past year, the board has strongly encouraged the payments industry to provide least-cost routing of debit card payments to merchants, as a means of increasing competitive pressure in the debit card market and thereby holding down payment costs in the economy.

“When a dual-network debit card is presented in a contactless transaction, it is important that the merchant is able to accept the payment via the lower-cost network. The major acquirers have provided assurances that they will offer this functionality. The bank is continuing to monitor progress closely.”

However, RBA governor Philip Lowe warned that should Australia’s major banks and credit card schemes fail to address the low-cost route, regulation could be brought in to mandate it.

In a speech at the Australian Payments Summit in Sydney in November, Mr Lowe said that an item on the RBA’s “late homework list” was the implementation of least-cost routing.

Mr Lowe said: “On the competition front, one area that merits close attention is the market for acquiring services. This has come into sharper focus as a result of concerns about the costs to merchants in the debit card system, where most cards allow for transactions to be processed by either of the two networks enabled on the card. The longstanding view of the Payments System Board has been that merchants should at least have the choice of sending the debit payment through the lower cost system, whether that be eftpos or the international scheme.”

He continued: “Some acquirers have already completed the necessary work and are attracting new merchants. Others, including the major banks, made commitments earlier in the year regarding the timetable for this work to be completed. Partly on the basis of those commitments, the Payments System Board made a decision not to regulate.

“Since then, I regret to say there has been slippage by some, who have cited technical problems. It is important that the banks get back on track here.

“A failure to deliver on commitments or to provide the payment services that the community needs will inevitably lead to calls for further regulation.”

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Major banks ‘feeding’ off small businesses, says Ombudsman
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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