After 13 years, banks make choices on Tap ‘n Go debit

George Lekakis Payments, mobile & wallets
Merchants get a bit more choice with Tap and Go
Merchants get a bit more choice with Tap and Go

Competition is finally arriving in the market for processing contactless payments, with ANZ becoming the first major bank in Australia to give retailers and other merchants a choice as to how Tap and Go debit card transactions are processed.

In a move that could dramatically lower the acceptance costs of retailers, ANZ has begun to offer its merchants the option of having contactless debit transactions processed by Eftpos Australia.

Since contactless payments were introduced to Australia around 13 years ago, the major banks have automatically routed debit card transactions through higher-cost Visa and Mastercard processing platforms.

ANZ has taken a low-key approach to marketing the new service to its merchants but a spokesperson confirmed on Thursday that the bank began promoting Eftpos processing of contactless payments on its website earlier this week.

“I can confirm we have launched the service to our merchants,” an ANZ spokesman said.

Banking Day understands that Westpac is also preparing to offer Eftpos processing functionality for contactless payments to its retailers from next Monday.

The Westpac launch will include the group’s regional banking subsidiaries – St George, Bank of Melbourne and Bank SA – after each updated their standard merchant service agreements this week to include provision of “merchant choice routing”.

The longstanding practice of routing contactless transactions through the Visa and Mastercard platforms meant that merchants have been copping hefty fees of around 1 per cent of the value of over-the-counter sales.

However, in 2018 Eftpos Australia began competing against Visa and Mastercard in the contactless processing market when its service was adopted by the startup business bank, Tyro.

Tyro reports that it has saved millions in fees for 4000 of its business customers after entering a deal to direct contactless debit payments to Eftpos’ cheaper processing service.

The success of the Tyro hook-up has put pressure on the major banks to add the Eftpos processing capability to their merchant service offerings.

ANZ charges retailers around 25 cents to process a contactless debit card payment through Eftpos, while Visa and Mastercard levy a fee set at 1 per cent of the value of the transaction.

On a $90 retail purchase, the Visa and Mastercard systems rake in up to 90 cents from merchants for processing the transaction.

The savings are likely to be significant for merchants such as supermarkets, petrol stations, fashion boutiques and appliance retailers that have a high volume of transactions above $25.

While Westpac has not yet published details of how its new service will be offered to merchants, ANZ’s is offering Eftpos processing only on an opt-in and all-in basis.

When merchants request the service all of their contactless debit card transactions will be processed through Eftpos, rather than Visa and Mastercard.

That looms as a sore point for the Reserve Bank’s Payments System Board, which has been urging the banks to move to a pure “least-cost routing” processing model.

Under the PSB’s preferred model, the banks should be building systems which automatically rout transactions to the lowest cost processing platform.

Under ANZ's pricing, the Visa and Mastercard platforms are cheaper than Eftpos for handling low value contactless transactions.

The PSB envisaged a scenario where banks such as ANZ could program merchant terminals to detect the cheapest processing system before a contactless payment was routed.

That has not happened in the case of ANZ and the PSB’s response to the business model the bank has developed is likely to be guided by the reactions of merchants and industry bodies such as the Australian Retailers’ Association.

ANZ argues that it has had to overcome significant programming and technical challenges to get its new offering to market and that the rollout would have taken considerably longer had it decided to adopt a pure least cost routing model.

Banking Day understands that the bank remains committed to migrating to a genuine least cost routing model in the future.

The immediate test for ANZ’s commitment to the service will probably hang on how actively it promotes and educates merchants about the benefits of the new service.

In the post-Hayne world in which banks are promising to rebuild trust with their customers, ANZ will come under pressure from business peak bodies to promote the appropriate processing option to merchants.