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More decisive action needed on small business payments, says Ombudsman

Small business owners and leaders have every right to be frustrated by the Reserve Bank’s review of retail payments regulations, says the Australian Small Business and Family Enterprise Ombudsman, Bruce Billson.

While some progress is being made, it is disappointing this report falls well short of delivering the vital changes small and family businesses have been crying out for.

“More decisive action is urgently needed to stop small businesses and family enterprises paying more than they need to for payment services,” Mr Billson said.

The Reserve Bank said it expected payment providers to “offer and promote least-cost routing” by the end of 2022 but falls short of mandating this as the default option and provided no explicit regulatory requirement.

Debit cards are now the most frequently used payment method in Australia and the Reserve Bank said that 90 per cent of debit cards are dual-network debit cards (DNDCs) which means they allow payment via either eftpos or one of the international debit schemes (such as Debit Mastercard of Visa Debit).


The widespread use of “tap-and-go” and other contactless electronic payments such as smart phones means customers are no longer offered a choice to push a button to choose CHQ or SAV from the typically lower-cost eftpos network and it defaults to the international network that can have higher costs for merchants.

Mandating least-cost routing as the default would mean the cheapest payment method would be available to merchants.

“For too long, small businesses have been slugged with unnecessarily high fees from credit card networks, when there is a cheaper option,” Mr Billson said.

“The Reserve Bank could have and should have done more after years of ‘urging banks to do the right thing’ which has resulted in an inadequate response and poor access and uptake of least-cost routing for small merchants.

“We are keen to work with sector participants to make least-cost routing the mandated default option for all small business payment methods, especially smart devices used as touchless payment tools.”

The Reserve Bank review also said the eight biggest card issuers would be expected to continue to issue DNDCs and called for this to include all forms of payment, including mobile-wallet providers.

However, there is no enforcement behind this sentiment and the report does not require other providers of debit cards with a smaller market share to provide DNDCs which will cause confusion in the market- place by creating two sets of rules.

Mr Billson said the small business sector would welcome the Reserve Bank’s finding that it would be “in the public interest” for buy now, pay later (BNPL) providers to remove their no-surcharge rules but noted there was no action to enforce this or help small businesses if they receive push back from BNPL operators.

“Small businesses are currently forced to absorb the cost of BNPL offerings and with often slim margins this places pressure on businesses’ bottom-line. The rapid growth in the BNPL industry means it will no longer be an optional extra for a small business and they will be significantly disadvantaged unless they are able to pass on the surcharges, “Mr Billson said.

Mr Billson said he was heartened that the Reserve Bank acknowledged it was important to reduce the cost to small and medium-sized merchants of accepting card payments but much more was needed to deliver on this.

“A safe and robust retail payments system that provides access to affordable and efficient means for small business owners to accept payments is crucial to their viability,” Mr Billson said.


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