Could Eftpos Bring Competition To Online Routing In Australia?

Eftpos Enters the Online Market

Historically, Australian merchants have only had one choice when it came to online debit card transactions: routing via a global card scheme. However, eftpos, the country’s major card-present debit scheme, has now officially revealed its go-forward rate for ecommerce transactions.

Eftpos began rolling out its ecommerce services at the end of 2020, providing an online debit alternative to global card schemes for Australian businesses.³ The new 0.15% rate released this past month will come into force later this year. With the percentage fee marking the first of its kind for the scheme, Australia’s merchants are poised to see whether leveraging these rates is the answer to their payment woes as interchange costs mount.

Rising Interchange Costs in Australia

As inflation and the cost of living continues to rise in Australia (Figure 1)⁵, so too do the percentage rates merchants pay to their payment partners – creating added pressure for retailers and customers alike. This reality makes it more important than ever for merchants to address excess card fees and deploy strategies to drive down their ‘pass-through’ charges. But is taking advantage of this newfound routing opportunity the answer?

Driving Competition Through Least Cost Routing

The Australian debit scheme’s entrance to the online space comes at a timely moment, as merchants clamor for the opportunity to drive down their payment costs and advocates across the country call for fairer merchant fees. The opportunity to achieve this through eftpos is one of competition – one that merchants can only access with optimized Least Cost Routing.

Least Cost Routing allows merchants to route their card transactions to the schemes with the most competitive merchant fees. With the Reserve Bank of Australia mandating that LCR be extended to online transactions by the end of 2022, the hope for merchants is that card schemes will feel pressure to keep costs competitive as retailers exercise the ability to shift volumes towards the most competitive rates online. The recently elected Australian Labor Party (ALP) estimates that the full implementation of LCR will generate around $804 million in annual savings for Australian businesses.⁷

But these savings are far from guaranteed. Merchants looking to leverage growing competition (both in-store and online) are increasingly finding that obstacles – from acquirer capabilities to shifting fees to strategic rates – are generating a huge disparity between those who implement and those who optimize. Even once in place, CMSPI’s experience shows that these optimized strategies can quickly drift into inefficient arrangements without detailed monitoring.

The Call for Merchants to Take Control

Keeping track of interchange fees can be difficult for merchants – this move marks the second time that Australian interchange fees have changed since the beginning of 2022. But even static fees represent a growing bottom-line for retailers as they attempt to navigate the largest quarterly increase in inflation in 20 years.⁸

Faced with these margin-crushing conditions, merchants are increasingly looking to Least Cost Routing as a key competition driver. But dynamically responding to these rapid changes and remaining in a cost-optimal position takes more than switching on LCR with their acquirer. Along with keeping track of interchange fees, merchants must also take into consideration a multitude of other factors such as the cost of scheme and acquirer fees, partnership models, acquirer-specific reporting, and routing limitations before deciding on the optimal routing structure for their business. With the presence of new players in the ecommerce space and the imminent rollout of online LCR, only merchants equipped with the data, benchmarking, and expertise can look forward to meaningful benefits to their bottom line.