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CBA to automate least cost routing for SME merchants; lower merchant fees

The Commonwealth Bank of Australia (CBA) announced that transactions between Eftpos and international schemes like Mastercard and Visa would be automated using the least-cost routing method (LCR), making it one of the first major banks to commit to automatically routing transactions for small business merchants.

“CBA will centrally route transactions in the most cost-effective and competitive way, so businesses don’t have to spend their valuable time managing their routing options, CBA said in a statement.

“CBA will also take the hassle out of payments by automatically routing transactions between eftpos and international schemes for eligible small business customers.” 

Treasurer Josh Frydenberg pressed the Reserve Bank of Australia earlier in September to lower expenses for small businesses by requiring commercial banks to provide cheaper debit card solutions to consumers making tap-and-go payments in stores. Frydenberg wrote to the Payments System Board, urging it to require major and medium-sized financial institutions to issue dual-network debit cards. 

Debit card costs for Mastercard/Visa are on average 0.5 per cent, compared to 0.3 per cent for eftpos. According to official statistics, small businesses suffer greater fees on average. 

Commenting on the significance of LCR for newsagents and lottery agents, Australian Lottery and Newsagents Association (ALNA) CEO Ben Kearney said: “The substantially growing costs of accepting payments for newsagents and lottery agents is one of their top daily concerns.

“They do not have the same level of control over commercial levers in different parts of their business as some other retailers. They are characterised by modest margins on volume products with fixed pricing.”

As an example, the cost of acceptance of card payments for lottery tickets – one of ALNA

members’ largest categories – can be as much as 9% of their total commission for the sale of these products.

“The most important mechanism for doing this recently, when customers increasingly want to use contactless payments, has been LCR. 

“This generally increases the number of debit transactions that occur, saving hundreds of dollars a month for many of our members,” Kearney continued.

Meanwhile, the government has said that it aims to implement least cost routing for tap-and-go debit transactions so that commercial merchants can avoid paying higher fees by using the relatively cheaper domestic eftpos system instead of the services of US card giants Visa and Mastercard.

According to James Fowle, CBA’s Executive General Manager, Everyday Business Banking, the announcement follows feedback from its merchant customers on Least Cost Routing (LCR) in recent months

“The overwhelming feedback from our small business customers is that they want simple competitive pricing without the hassle. They want the benefit from least cost routing without having to manage the routing themselves,” Mr Fowle said.

“Our new flat rates are designed to offer that by removing complex pricing structures and managing the routing of transactions for them. We’ll automatically and centrally route transactions in the most cost-effective and competitive way, saving businesses a lot of time and money.”

Lower rates

In addition to automating transaction routing, the bank said that all in-store card transactions will be charged a flat rate of 1.1 per cent, and all online payment transactions will be charged a flat rate of 1.5 per cent, irrespective of interchange rate or card type.

“To lower the cost of doing business, CBA will be offering 1.1 per cent for all in-store card transactions, and 1.5 per cent for online transactions, regardless of the interchange rate or the type of card (debit, credit or Amex),” CBA said.

To provide a further cash injection in the lead up to Christmas, CBA will automatically waive three months of merchant fees for small businesses that have been hardest hit by the latest COVID lockdowns. This equates to more than $7 million dollars back into the pockets of merchant customers.

“From next week, we’ll be letting more than 50,000 customers know we are automatically waiving their standard merchant fees for three months from September through to November. 

This translates into approximately $7 million back into their pockets leading up to Christmas,” said Mr Fowle.

Additionally, CBA said that an additional $3 million has been returned to retailers who have been facing financial difficulties since the outbreak began. Customers who are having financial difficulties can contact CBA for a refund on a variety of applicable fees for a period of up to 90 days.

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