Last Friday the RBA concluded its review of retail payments regulation. The review aims to contribute to a more efficient and competitive payments system, setting out various policy actions, together with amendments to the Bank's standards for card payment systems, mobile wallet providers and Buy Now, Pay Later (BNPL).

The new policy actions stemming from the review relate mostly to dual-network debit cards and least-cost routing of debit transactions, interchange fees, and scheme fees. A number of measures are aimed at reducing the cost to small and medium-sized merchants of accepting card payments.

There are 4 key benefits for merchants, being:

  1. There are substantial reductions in debit and eftpos card wholesale fees (interchange) charged to merchants.
  2. Merchants can surcharge on BNPL with the removal of “no surcharging” clauses in contracts.
  3. Least cost routing for online payments must be enabled by merchant acquirers by the end of 2022.
  4. By end of 2022 all banks, acquirers and gateways will need to enable eftpos payments for retailers digital/card-not-present environments. 

Notably, the wholesale interchange fee cap on debit and prepaid cards will be reduced from 15 cents per transaction to 10 cents per transaction, a substantial one-third reduction in wholesale debit fees which should reduce merchant costs on debit transactions.

The RBA has decided not to regulate BNPL providers like AfterPay and Zip Co, however they will have to remove the “no surcharging” clauses in their contracts.

The RBA will seek voluntary undertakings from Visa and Mastercard not to carry out “tying” arrangements that incentivise merchants to route all debit transactions to them.

All acquirers, payments facilitators and gateways will need to allow for Least Cost Routing (LCR) on card-not-present transactions by the end of 2022.

The RBA has not provided default routing to the eftpos network for debit card transactions by banks and acquirers as sought by SME and mid-tier merchants and various retailer Associations.

Scheme fee rates and revenues/rebates charged by the card networks will need to be reported to the RBA but the visibility will mostly benefit major merchants as SMEs are generally provided bundled rates.

The RBA will engage with ApplePay, GooglePay and other wallet providers to provide more consumer choice through supporting the provisioning of eftpos debit as currently only Visa/Mastercard debit is enabled.

Dual network cards will need to be provided by all debit cards issuers except for card issuers with <1% debit cards market share by value.

Read the full review and conclusions paper here