(25 June 2019 – Australia) Reserve Bank of Australia (RBA) analysis reveals the proportion of electronic transaction fees collected from retailers accepting contactless payments has jumped sharply since 2016, resulting in a massive shift in the overall cost burden borne by small businesses away from shoppers.
The RBA’s latest Bulletin confirms that as ATM fee revenue declined from A$150 million in 2016 to under A$50 million as of 2018, that lost income has been made up by contactless acceptance fees. Total fee income from businesses increased by three percent in 2018, almost entirely due to higher fee income from small businesses. By product, the main driver for growth in fee income from businesses was the continued increase in income from merchant service fees on card transactions.
“Merchant service fee income continued to grow strongly in 2018 amid double digit growth in the volume of card transactions. Banks reported that growth was driven by fees charged to small businesses for accepting card transactions, although merchant service fees charged to large businesses also increased,” the RBA said.
“The popularity of Visa payWave continues to rise compared to other payment methods. In the last two years, the ratio of contactless to other payments (which include chip, magstripe and contact) increased from 81 percent in January 2016 to 92 percent in December 2017,” Westpac said in a market analysis.
“Similarly, high contactless payments use is illustrated by the fact that 90.6 percent of face-to-face payments among Westpac Visa cardholders in 2017 were contactless. Contactless also accounted for 68.4 percent of Westpac Visa Cardholders’ total spend, up from 57.3 percent in 2016.”
The RBA’s key least-cost routing reform, where a merchant can determine how a transaction is ported, will undoubtedly impact contactless fee amounts between card schemes and eftpos. While the RBA forces card schemes such as Visa and MasterCard to publish interchange fee levels and regulate them, merchant service fees (MSF) vary widely based on business turnover. They can also be calculated as a combination of percentage and fixed fee charges.
Regulators are concerned loyalty points are inadvertently cross subsidised by SMEs, making it harder for them to compete. The RBA recently warned card schemes and banks it was monitoring attempts to use security upgrades using tokenisation to shut out least cost routing, cautioning that such a practice went against its policy intentions.