Least cost routing is getting a leg up but the least cost welfare maximising routine is getting left behind in Australia.
The Reserve Bank’s Review of Retail Payments Regulation is a tin can of half measures that has dismayed the small business sector, especially around least cost routing.
The RBA said it expects all acquirers and payment facilitators to offer LCR functionality for device-present transactions “and promote the functionality to their merchant customers”.
“Similarly, the Bank expects all acquirers, payment facilitators and gateways to offer and promote LCR functionality to merchants in the online environment by the end of 2022.”
In implementing LCR online, the Bank also expects industry participants to abide by a set of “Principles for LCR in the device-not-present environment” set out in the review. These include that:
- merchants (or their acquirer or gateway) can decide whether or not to give customers the ability to choose which debit network will process their transaction; and
- card schemes should not impose rules or technical standards that have the effect of significantly reducing the likelihood of acquirers and gateways providing, and merchants choosing, LCR.
The RBA will also afford smaller issuers of debit cards to stick with single network debit card functionality, to the benefit of the likes of Macquarie Bank.
The bank expects said issuers with a market share of more than 1 per cent of the value of debit transactions (corresponding to around $4 billion in transactions in 2020) “to issue dual network debit cards”.
“For these issuers, both card schemes on their DNDCs should be provisioned in all form factors, including mobile wallets, offered by the issuer (where the functionality is supported by the relevant schemes and mobile-wallet providers)."
The potential for high interchange rates to incentivise single network issuance will be limited by introducing a ‘sub-benchmark’ for SNDCs, such that the weighted-average interchange fee on SNDCs from a given scheme must be no more than 8 cents.
The RBA said it will engage with mobile-wallet providers that do not currently support the provision of both networks on DNDCs and encourage them to do so.