16 October 2024

TRANSCRIPT

Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with David Penberthy and Will Goodings.

Radio 5AA, Adelaide

Subject: payment surcharges and need for least-cost routing to cut payment fees

Will Goodings

On yesterday's program, during our seven o'clock news wrap, we talked about the Federal Government's commitment, pending an RBA investigation, into removing these pesky card surcharges when you don't use cash. Just 12 per cent of all retail transactions are now cash. The predominant way people buy things is by tap-and-go or with a card, and it does incur a surcharge. The Federal Government say they'll get rid of it by 2026. Now there are two groups we are primarily interested in how this will affect. Consumers, 99 per cent of our listeners, but also small businesses. And immediately, yesterday, during our conversation, our mind went back to a chat we had with the Small Business Ombudsman Bruce Billson. So, we invited him on the program this morning to get his thoughts. Bruce, good morning to you. 

Bruce Billson

Will, fab to be with you and Penbo. 

David Penberthy

Bruce, great having you on again, mate. We loved our segment last time. We got really good feedback from the listeners about it, too. So, we're thrilled that you can join us again. You're a Victorian, what do they call the annual show over there? We call it the Royal Show here in Adelaide. The show bag pavilion became the focus for a lot of public anger about this, because people were buying their show bags, you know, five bucks for Bertie Beetle or whatever. And suddenly every single little transaction was getting, you know, 15, 20, 60 cents, whatever it was, added to it. And it's suddenly become an issue that's really driving the punters mad.

Bruce Billson

Some people have said it's bit like travelling to the US, where you go and buy something, and then when you go to pay it a bit more because of different sales taxes. And some are saying this surcharging thing’s a bit like that. What's happening, though, is that we've got some rather expensive charges on those payment transactions in businesses where margins are really thin. And Penbo, you remember we talked about hospitality, where, if you've got 6, 7, 8 per cent profitability you're doing pretty well. But if you then find that getting scraped out by excessive costs just to receive payments from your customers, it gets pretty grim.

So, what's been happening as business conditions have tightened and profitability has really become a challenge. Let's not forget, 46 per cent of small businesses didn't make a profit in the last tax reporting year. These extra costs on top of energy, rent, wages bill and all that, has made it pretty tough. So, what some merchants have been doing, not all, but some have been passing those costs on, and others have been wondering, well, hang on, why am I paying three times as much as a merchant to have this payment transaction project processed, compared to, say, a supermarket, where they've got a super sweetheart deal and they pay a fraction of the cost. 

And that's what the Reserve Bank's having a look at. No one wants to pass on business costs that aren't justified, and businesses want to be profitable. But when they've got these charging regimes for receiving a payment in a form other than cash, and the prices are steep in some areas, they're having to deal with that. And that's really what the Reserve Bank's looking at.

Will Goodings

Bruce, we all get it from the from the perspective of the consumer, in terms of the fee gets slapped on the end. I think the thing that certainly I and I reckon a lot of our listeners wouldn't entirely grasp, is the relationship between the small business owner and that middle person between them and the bank that collects the fee. How much capacity is there to shop around and get a better deal? Is it based on your EFTPOS system? How does that come about? Are the small businesses beholden to these people, or have they got an opportunity to try and cut a better deal for themselves?

Bruce Billson

They can, but there's three parts to that. One is they can get a better deal from their banks. And we have been urging the banks to activate what, what is called least-cost routing. So, when you're there and you go to wave your card or your phone, the terminal picks the payment channel that is the cheapest one for that transaction. Now that's good news for you. That's good news for the merchant. But we're only finding about half of those terminals are activated for least-cost routing. So that's what we've been calling for. 

Otherwise, it's a bit like the payment being shoved down an expensive payment channel because everyone gets a bit of a clip. That'd be a bit like you and me owning a sat-nav business and a toll road, and didn't matter where we wanted to go, we got pushed onto the toll road. We know that would be dodgy.

And people who look at that and go, gee, that's a bit odd. And so, this is the same thing in least-cost routing. Why don't those payments go down the cheapest channel to execute that payment? And that would then take pressure off the cost of receiving that payment, and therefore reduce the likelihood of surcharging. 

There's about a dozen different payment service providers, so they kind of sit between the merchant, the bank who issues the card, everyone's having a bit of a clip. They say guess what, Pembo, we'll make it easy for you. It'll be 4 per cent on every transaction. You go, oh, 4 per cent, gee, that's a bit steep. Oh, but don't worry, we'll give you a terminal that drops that in automatically, and it just pops up and will let you know about other things like stock levels and all that. So, they're bundling stuff into that process and then pushing on a cost to the merchant that then pops up when you go to tap your card as a surcharge. 

This is what the Reserve Bank's trying to unpick and have a look at why are we paying so much? Why is this such a sweetheart deal for the big supermarkets. And why are small merchants getting skewered at the end of it, at a time when they can least afford it because of difficult trading conditions.

David Penberthy

It seems silly, though, Bruce, that these things incur a cost. It just looks like rank opportunism that something that's now become the way of the world for 90 per cent of financial transactions … because some of these companies that are involved in the provision of these financial services, I saw yesterday, they've started tanking a bit on the stock market, because I think they can see the freight train coming. 

Bruce Billson

Oh, I think that's right. Frankly, some of them been doing very well. You know, money for jam because people know that it's confusing. The moving parts around getting a payment, who's issued the card, what bank is processing it, where's it being received, what's the cost of the service that's part of it? It’s all so opaque. It's really hard to get a handle on. And people just sort of shrug their shoulders and think that's not that flash. And some of those businesses have been making good money, in that fog, in that confusion. They've been saying, Look, here's a percentage transaction charge. It's all pretty clear, and we'll bump it straight through when it comes time to pay. So, it'll ‘cost you nothing’ but the reality is the actual cost of executing that transaction is nothing like that charge that's being applied and then that's money for jam in the middle. So that's what this examination is about. I'm pleased it's underway. There's a bit of a question mark over how much power the Reserve Bank has over some of these arrangements. They’ve got to check whether they've got the legislative cover to deal with it. 

And then there's other things changing all the time, like your phone. The next iPhone is going to have some functionality on it that you can choose credit card, debit card, which system. That's all good stuff, but you've got regulators trying to keep up with that. Consumers hoping they're not being ripped off, and small businesses battling to keep the lights on.

David Penberthy

That’s a really good explanation, Bruce, and I'm going to say I've got no finance journo background at all. So, it was good having someone like you as a great explainer of these things to come on.