The major banks have an unmistakable record of contriving customer outcomes in the payments industry that run counter to the public interest.
In 2006 they summarily binned the Bankcard credit card scheme even though it was continuing to turn profits from a fiercely loyal base of more than 2 million cardholders.
That decision handed the local credit card market on a platter to Visa and Mastercard.
It was a strategic move that robbed Australian consumers of the choice to subscribe to a competitively priced domestic scheme.
Three of the major banks wanted to pull the plug on Bankcard a decade earlier, but they could not persuade then NAB managing director, Don Argus, who believed the business had potential to retrieve competitive ground from global rivals, Mastercard and Visa.
Little more than a decade on since they scuttled Bankcard, the major banks are at it again – this time with the domestic debit scheme Eftpos in the line of their collective fire.
Eftpos, as its latest financial statements show, is enjoying a turnaround in its earnings performance thanks largely to the introduction of least cost routing on contactless debit payments.
The proponents of the three-way merger, including the four big banks, pledged in a press release on Tuesday that a union of NPP, Eftpos and BPay, would foster lower cost payment services that would put downward pressure on average merchant fees.
They did not articulate precisely how lower merchant fees would flow from the merger and neither did they address how such a corporate transaction would speed up the major banks’ respective rollouts of least cost routing.
To put this bluntly, the major banks have a credibility problem with small business customers because they continue to deny Australian retailers the choice to route contactless transactions to the cheapest scheme payments processer in the country.
The major banks are inclined to suppress or distort price signals in the payments market whenever they risk having to sacrifice revenue and pass on savings to merchants and their customers.
So, why should small business advocates accept the claim of the four big banks – the main shareholders in each of the schemes earmarked for consolidation – that a merger would somehow lower merchant acceptance costs?
The truth is that the strategic weakness in the payments industry in Australia is completely unrelated to the fact that Eftpos, NPP and BPay operate as standalone entities.
Overwhelmingly, it has more to do with the attitude of their common bank owners who time and again demonstrate they are unwilling to share with customers the benefits of the product and service innovations that their subsidiary schemes originate.
The evidence for this assertion is manifest in the reports of inquiries into competition in the banking sector that have consistently highlighted how problems of governance and conflicts of interest shape the industry’s structure.
And regardless of what the problem might be – whether it’s the Productivity Commission’s concern over the NPP’s access regime or the Payments System Board’s frustration with the delayed rollouts of least cost routing – the fingerprints of the major banks are usually apparent.
Right now, the strategic challenge for Eftpos is not exclusively one of needing to develop innovations or products to bring cost savings to merchants.
Eftpos’ big problem is the conduct of its major bank shareholders who are responsible for distributing its services and price signals to retailers and other business customers.
Least cost routing is slowly proving a winner for Eftpos because it is already a price leader for processing contactless payments.
The merger will have no bearing on that.
But Eftpos’ bottom line would have grown even more rapidly in recent years had the major banks been prepared to transmit its price signals.
The beef I have with this proposed merger is that it is not proposing to change the attitude of the major banks as to how each of the schemes should be allowed to operate.
And that is the real problem with the Australian payments system that Robert Milliner, the chair of NPP Australia’s industry consultation committee, did not address in his press release on Tuesday.