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Breaking News: What Merchants Need to Know About the RBA’s Latest Payments Update

On March 28th, the Reserve Bank of Australia (RBA) released a speech by Ellis Connolly, Head of Payments Policy, from the AFR Banking Conference on the shift by Australian consumers towards card payments, which according to the report account for three-quarters of payments – half with debit, and a quarter with credit. Here’s what all merchants need to know from the release. 

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What merchants need to know from the release.

1

Merchants could save millions through Least Cost Routing.

The RBA has encouraged least cost routing (LCR) adoption by the industry for many years, but LCR availability by industry partners (90%) still significantly outstrips merchant enablement (53%). With those numbers varying by acquirer, merchants looking to take advantage of least cost routing need to be working with their payment partners to realize the $800 million in savings that CMSPI estimates full routing competition could deliver.

2

Mobile routing is more critical than ever.

The RBA reports that mobile transactions have more than tripled in-store since 2019, with around a third of all contactless payments made by mobile device. CMSPI estimates that almost $250 million of the $800 million in LCR savings could come from mobile wallets, and this share is only expected to grow with digital mobile routing enablement.

3

Scheme fees could be on the rise.

The RBA confirmed that around $1.2 billion in net scheme fees was paid by Australian issuers and acquirers and, ultimately, by merchants, in 2021/22. However, these net scheme fees are not inclusive of the rebates that issuers and acquirers receive, with issuers regaining 13 bps for every 15 bps charged and acquirers regaining 1 bps for every 10 bps. The true cost paid by merchants for scheme fees may be compensating for these rebate incentives.

The RBA has also confirmed that a number of reports state the “level of schemes fees has been drifting up over time.” There is currently no standardised resource on scheme fees for Australian merchants to refer to and, even for merchants reviewing their own fees, charging structures can be incredibly opaque in the absence of benchmarking and rebate data.

What’s Next? 

The RBA’s release of scheme fee and LCR data once again places it at the forefront of generating transparency for merchants in payments. But understanding the average level of fees and LCR enablement is not enough for businesses to truly audit their underlying payments costs-- between commonplace overcharges, unique transaction mixes, and the negotiations that sit behind those ‘strategic rates’-- it is up to merchants and their advocates to ensure that the rapid pace of change in Australian payments works for them.  

Read the full speech here: https://www.rba.gov.au/speeches/2023/sp-so-2023-03-28.html  

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