Reserve Bank governor Michele Bullock has warned that the central bank may use its payments system regulatory powers to speed-up the rollout of least cost routing to merchants, saying progress has been slow.
Bullock flagged two other areas for possible regulatory intervention: giving merchants the right to surcharge for buy now pay later services; and removing barriers to entry and making costs more transparent in the mobile wallet market.
Speaking at the Australian Payments Network Summit in Sydney yesterday, Bullock said the RBA was a “reluctant regulator” but would do so where the industry was not responsive to its concerns.
Bullock said: “Least cost routing is important because it puts competitive pressure on card payment schemes to lower fees to merchants. While some progress has been made to enable LCR for merchants, it has been slow.
“So formal regulation may be required to get acquirers and other service providers to deliver the full benefits of LCR to merchants.”
The RBA estimates that around 54 per cent of merchants are enabled and active for LCR. Bullock said it was unrealistic to expect 100 per cent coverage but 80 per cent should be an achievable target.
She said use of mobile wallets had grown rapidly, “but the costs associated with these services remain opaque and payment service providers can face barriers to entry”.
And she said BNPL was an expensive means of payment and merchants should have the right to surcharge.
“The right to surcharge for payment methods provides an important incentive for payment schemes to keep their fees low. Formal regulation may be required to allow this.”
These matters will be considered in the context of a broader review of payments regulation next year, as the government implements its new approach to the regulatory coverage of payments.
The Payment Systems Regulation Act will be amended to allow for the regulation of new players in payments, including buy now pay later providers, payment gateways and mobile wallet providers.
Bullock also spoke about the emergence of problems in the cash-in-transit market, where Armaguard has told banks and other cash handling businesses that the industry is not sustainable in its current form.
Last week, the ACCC granted interim authorisation to the Australian Banking Association, its member banks and industry participants to work together to develop an arrangement that will guarantee the ongoing distribution of cash.
She said the RBA places a high priority on the community continuing to have reasonable access to cash deposit and withdrawal services.
The RBA is monitoring developments in other markets where a similar problem has emerged. One option is the creation of a co-operatively owned utility to handle cash distribution, although such arrangements have been “challenging to implement”.