The Reserve Bank has made progress in its campaign to embed least cost routing in the Australian payments system, announcing yesterday that Visa and Mastercard have given undertakings that they will not engage in “tying conduct”.
Tying conduct occurs where merchants receive favourable terms for payments processing in return for agreeing to certain conditions. It has been suggested that the big payment schemes have offered lower costs if merchants agree to have all debit payments routed through their networks.
In a statement yesterday, the RBA said the undertakings “address the bank’s concerns that the international schemes could engage in conduct that would limit competitive pressure in the debit market, which has the potential to impose additional costs on the payments system."
The RBA has been pressuring banks and other payments industry participants to offer least cost routing, which gives the merchant the choice of processing payments through Visa or Mastercard, or eftpos. The RBA says the eftpos network is generally cheaper and least cost routing helps lower system costs.
LCR relies on the issuance of dual network debit cards, allowing point of sale transactions to be routed through the eftpos network or Visa or Mastercard. The majority of debit cards issued in Australia are dual network.
The key undertaking is that under the schemes’ merchant agreements, neither the volume or value of a merchant’s transactions routed through a particular debit card network in Australia or a merchant’s decision on the debit card network through which it routes dual-network debit card transactions will influence the rates applicable under the agreement or the merchant’s eligibility for a reduced interchange rate.
The schemes have also agreed to include dispute resolution frameworks in their merchant agreements.
They have agreed to appoint independent auditors to review their compliance with the undertaking. They will have to provide details of all current merchant agreements and all correspondence with merchants to the auditor.
The undertakings follow the Treasurer’s announcement earlier this month that as part of the government’s plan to modernise Australia’s payments infrastructure and regulation, it will take action if the industry does not meet the RBA’s expectation for LCR.
The RBA is currently pushing merchant acquirers to meet commitments to make LCR available to merchants taking contactless card payments in-store. It also wants them to make LCR available to merchants for online transactions and has warned that the industry is not meeting the RBA’s timeline for this.
The RBA is targeting LCR for mobile wallets by the end of 2024.