COSBOA notes the recent announcement by Commonwealth Bank that it will be lowering merchant fees for small businesses. The announcement had three components:
CBA will be offering flat rate merchant fees of 1.1 per cent for in-store card transactions and 1.5 for online transactions. These rates will be applied automatically to businesses with a turnover under $250,000.
It will be routing transactions in a cost effective and competitive way
It will be waiving merchant fees for three months for the small businesses hit hardest by lockdowns.
COSBOA CEO Alexi Boyd said “This is a significant first step towards mandating least cost routing as the default and ensuring that, through the evolving conversation on the payment system, small business merchants are ultimately given control of the routing decision as occurs in the USA.”
“The merchant fee waiver is also very welcome and comes at a time when many small businesses are doing it tough. Every cent of support counts. It’s great to see CBA lighting the way and showing other big businesses how they can support small.”
Ms Boyd added “However, though it’s great that they’re lowering merchant fees, it is our understanding that Commonwealth Bank aren’t actually implementing least cost routing. They state they will automatically route transactions through eftpos and international schemes in the ‘most cost effective and competitive way,’ not the way that is least cost routing.”
“This is why it’s still important that we get regulation to mandate least cost routing as the default setting. The payments space has been static for years and now we finally have some momentum. COSBOA will keep advocating for a clear framework for the implementation of compulsory least cost routing for all payment types including in-store debit card transactions, digital wallets, and online transactions.”
“In short, this is a positive move for businesses at the very small end of the business spectrum, but the end game remains the implementation of Least Cost Routing (LCR) for all small and family businesses”
More about least cost routing:
Least cost routing is when debit card payments and other digital transactions are processed (or ‘routed’) through the network with the lowest cost to the small business. It is currently an opt-in system and small business owners often encounter resistance from their bank when they ask for it to be implemented. Earlier this month, the Treasurer wrote to the RBA encouraging it to make least cost routing mandatory. COSBOA has commented extensively on this, which you can read here and here.