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Least cost routing goes live amongst ARA criticism

Least cost routing goes live amongst ARA criticism

(4 April 2019 - Australia) Major retailers have hit back over contactless payments gouging as ‘Least Cost Routing’ (LCR) gradually comes online.

As ANZ and Westpac initiate LCR this month the Australian Retailers Association (ARA) has roundly criticised institutional delays that are costing both merchants and consumers. Westpac is also revealing its LCR structure however pricing details remain unclear in addition to when majors CBA or NAB will move into line with the new regulatory measure.

For the last decade US card schemes Visa and MasterCard have monopolised contactless payments routing by requiring transactions to run on their infrastructure so that they attract fees of around one percent of the transaction value paid to the acquirer. The Reserve Bank of Australia (RBA) has moved to strip multinational card schemes of the power to divert tap payments onto their network by introducing LCR by allowing retailers to choose which network payments are directed to and requesting banks to make payment terminals to default to the cheapest networks for the merchant. ANZ is the first major bank to switch on LCR however Banking Day reports that the group is charging 25 cents per transaction to re-route contactless payments via eftpos instead of Visa and MasterCard. Merchants have to ‘opt in’ despite merchants expecting a lower cost default switch. Retailers are also frustrated that ANZ is demanding retailers display signs telling consumers about the LCR switch it feels the RBA has mandated ought to be automated within the terminal.

“Contactless payments were first introduced into Australia over a decade ago and since then major banks have automatically routed contactless debit card transactions through higher-cost processing platforms such as Visa and Mastercard and the extra costs has been borne by retailers and merchants,” ARA Executive Director Russell Zimmerman commented. “The banks’ approach is a step forward for retailers and merchants across Australia. However, the ARA is disappointed that the banks have only gone halfway by offering merchants an “opt-in model” and not supported “Least Cost Routing” as per the RBA Payments System Board, who have been urging banks to adopt the least cost routing processing platform. “The ARA is disappointed that the banks have only gone halfway by offering merchants an “opt-in model” and not supported “Least Cost Routing” as per the RBA Payments System Board, who have been urging banks to adopt the least cost routing processing platform,” ARA chief Zimmerman said.

“Although the ANZ bank has stated that it is committed to working towards “Least Cost Routing” it is difficult to understand why ANZ was unable to achieve this when Tyro a small acquirer was able to achieve this in about three months,” Zimmerman said. “Furthermore, the ARA is perplexed as to why the NAB and CBA banks are still silent on this issue. While we understand that both banks will be working towards an offering, we would encourage both banks to offer a “Least Cost Routing” and not an opt-in model as a matter of urgency.”

“Although the ANZ website stipulates that merchants must disclose to customers using a sign at the point of sale, that all contactless Multi Network Debit card transactions are to be routed through a domestic ePAL network (i.e. eftpos), the ARA is under the impression that this is an unnecessary measure. It is the ARA’s understanding - having had past discussions with the RBA - that the RBA does not require merchants to reveal the way consumers transactions are routed, as it makes no difference to the consumer.”

The ARA is strongly encouraging merchants to consider routing debit transactions via the eftpos network ”to secure the vibrancy of the Australian retail industry and the sustainability of the economy,” the group said.

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