Banks will be required to support merchant access to least cost routing services on debit transactions executed through mobile wallets by the end of 2024 under reforms announced by the Reserve Bank’s Payments System Board.
Following the PSB’s November meeting on Thursday, the regulator urged the payments industry to begin work on redesigning their mobile wallet products to facilitate the change.
A spokesperson for Eftpos Australia’s new owner - Australian Payments Plus - revealed to Banking Day on Friday that the company was already working with industry participants to facilitate the rollout of least cost routing for mobile payments.
“We support the RBA's actions in driving the availability of merchant choice routing on mobile devices,” the AP Plus spokesperson said.
“As transactions move increasingly towards mobile, it's important for merchants to be able to access payment options which, according to the RBA, have on average lower fees than the international card schemes.
“Over the past few months, we've been working productively with device manufacturers to understand their plans in this space and we're confident that the end of 2024 deadline is achievable.”
Least cost routing (LCR) is a service that allows retailers and other merchants to select the cheapest card scheme network to process debit payments.
Banks have been required to offer LCR on contactless in-store debit transactions since 2019 and are expected to extend provisioning to include internet-based ecommerce transactions by the end of this year.
The introduction of LCR has opened opportunities for retailers to lower the fees they incur on debit payments by giving them the right to route transactions to Eftpos Australia for processing.
Fee data published by the Reserve Bank indicates that Eftpos’ average fees are much lower than networks operated by global payments giants, Visa and Mastercard.
The PSB is redoubling its efforts to widen access to LCR for retailers because of its potential to lower acceptance costs and improve the efficiency of the payments system.
The regulatory push to extend merchant choice over routing to include mobile wallet transactions is significant because RBA research indicates that more than a quarter of all debit transactions are now going through digital wallets.
“Following the Bank’s discussions with industry participants, the Board considers it to be both feasible and desirable for the industry to deliver LCR functionality for mobile wallet transactions by the end of 2024,” the PSB stated in a release on Thursday.
“It is requesting that the mobile wallet providers inform industry of the designs of their LCR solutions as soon as possible.
“The Board also expects that merchant choice of debit network would be the default setting in the mobile environment, although it has a strong preference for consumers to also have some ability to choose their preferred debit network.”
The AP Plus spokesperson welcomed the RBA’s focus on merchant choice routing as a minimum requirement and said the company equally supported the right of consumers to influence which network processed debit transactions.