17 October 2024
TRANSCRIPT
Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Steve Austin.
ABC Radio Brisbane
Subject: payment surcharges and need for least-cost routing to cut fees
Steve Austin
There's a couple of reviews underway as to the charges, or the merchant fee charges, or the tap and go charges that financial institutions charge a business for using their facilities. Bruce Billson is ear-bashing the Federal Government on behalf of small business. Bruce Billson is the Australian Small Business and Family Enterprise Ombudsman.
Bruce Billson
Look times are tough. Some have described it as challenging a time as they can recall. We saw in the last full year of tax data, 46% of small businesses aren't making a profit. For those that are self-employed independent contractors, and for whom that work is their full-time livelihood, three-quarters are taking home less than average total weekly earnings.
So, that's a really challenging time where margins are being squeezed. What we know is cost of living pressures are cost of doing business pressures for small business and so often they're not able to pass those cost increases on, squeezing margins and making it a very challenging time.
Steve Austin
Prior to the last federal election, the ALP promised to look at what's called least-cost pathways. And this now looks like it's finally happening, whereby the use of surcharges on tap-and-go payments is going to be examined. What would small business like to see happen, Bruce Billson?
Bruce Billson
We've been championing the cause for least-cost routing. Steve, for you and your listeners, that’s when someone rocks up to a merchant to pay for a goods or service they're buying and they wave a card or their phone, the technology automatically chooses the payment pathway that's the cheapest. So, that's good for the consumer. That's good for the small business. That's able to be activated in the majority of merchant technologies, but it's simply not. And so, we've been pressuring the banks to activate that function, to let people know about how it works. So that's part of the announcement that we very much welcome.
And then there's also the simple fact that it's a dark mystery to most people how these charges are arrived at. We know they're more expensive here than, say, in Europe. And the greater these charges, the more likely it is that the small business merchant will want to pass them on to their customers, because they're already finding it such a tight time and difficult to make a profit. So that's the anatomy of it, Steve.
The least-cost routing mechanism, that's one. But in the announcement that's been made by government, they're looking at the various players, whether it's the people that issue the cards, the banks that are involved, the cost of making the transaction. A bunch of moving parts that add up to higher costs than elsewhere. What can be done to take off those cost pressures, make them more transparent and basically empower small business and consumers to get a better deal.
Steve Austin
How many different electronic payment methods or pathways are there out there?
Bruce Billson
That’s two questions, and that's part of the great mystery. There's about a dozen or so large providers of payment services, but in the background, there are multiple payment channels. You've got local cards, local services, like EFTPOS. You've got international services like Visa and MasterCard. You've got bespoke services like Diners and American Express. And now you've also got some businesses, you know, there's a chemist chain that's trying to get you to click on a QR code so that you effectively just do a direct transfer and cut out the middle people because of the cost.
So, these are the various moving parts, not to mention phones. And even when you're on a website, that’s a ‘card not present’ and you're punching in your numbers and there's multiple ways of having that operate as well. This is why it's such a challenging space. It's so opaque.
There's so many players and Steve, you and your listeners would probably know some merchants have chosen clarity. So, they've gone for a payment service provider where it's a fixed fee. You might pay 3% on every one of your transactions. Little do you know, though, they might be paying a fraction of that to actually complete the transaction, and they're keeping the clip in the middle. So, these are all the things that are happening in this fog, and that's why it's very important that transparency also be there as well as improved affordability, and that'll help small business and consumers.
Steve Austin
That's why I like cash. It's transparent, and no one clips the ticket when I hand you 50 bucks. It stays 50 bucks. My guest is Australia's Small Business Family Enterprise Ombudsman, Bruce Billson. This is 612 ABC, Brisbane. How much does it cost, say, a petrol station, to have a tap-and-go facility? I'm told it's over $10,000 a year.
Bruce Billson
Yeah, that'd be right. It's a big number. And those that are experts in that particular industry can give you exact numbers. But it is of that order, and it also reveals something else, Steve. You and your listeners would probably think, I should go with EFTPOS, no I'll go with Visa or I'll go with MasterCard.
You know, different payment platforms and cards and channels have different pricing arrangements. So, if you're a merchant, like a corner store down in Brisvegas, and all you're selling is convenience goods and coffees, maybe the average sale might only be eight or 10 bucks. Well, for you, one type of payment will be better, maybe a percentage payment, because the numbers aren't that big. You go to a furniture retailer, a percentage fee will add up being stacks of money and therefore a fixed price might be more attractive for you. So, it varies based on transaction volume and amount, and that's why least-cost routing is really important Steve. It picks the lane that's most cost effective, and that's good for everybody, and that's what we think a real effort to have that readily available, a common feature across our economy, is something we need to get on with.
Steve Austin
When some of Federal Parliament's economics committees have examined this issue, I've heard the figure of somewhere between $1 billion to $4 billion revenue is being made by the banks who offer these, this sort of tap-and-go up, or the range of options. Do you know? Do you have a more accurate range of how much money the banks are making from this?
Bruce Billson
It’s of that order. What I do have is accurate numbers on how much is needlessly charged, and that for small business, based on our work in 2022, was between $800 million and $1 billion of fees charged that were above the least-cost rate. So, fees that don't need to be charged. An impost on the economy, on merchants and consumers that doesn't need to be there. And that's why least-cost routing and the work the Reserve Bank is doing to shine a light on this often mysterious part of our economy, increasingly important. You've talked about cash, I think it's 12-14% of transactions are in cash now, so cards and ‘card not present’, and phones that you wave over terminals are the norm.
So, getting this right really matters, and getting it right so it works for consumers and small merchants, small business, is really the goal that I welcome that's been announced by the government.
Steve Austin
I'll leave it there. Bruce Billson, thank you.