Following its summit on 8 December, COSBOA has put forward recommendations it believes need to be addressed to ensure small businesses get the most out of the move to a digital trading platform.
The organisation said it wants to maintain competition in the payments system, for least-cost routing to be the default, and for small businesses to be able to have control over the fees they pay in order to be able to choose the most cost-effective option for them.
The first major point that came from the summit is that small businesses can save up to 40 per cent on merchant fees with least-cost routing as the default.
Mangala Martinus, managing director of Payments Consulting Network and Merchant Pricing Hub said the plethora of payment systems available and the myriad structure of fees associated with them have left small businesses confused and often needing help.
He revealed that small businesses can save an average of 5-10 per cent if they switch to merchant choice with the same bank, 20-30 per cent if they compare offerings from multiple providers, and 20-40 per cent if they seek expert advice.
Secondly, the summit found that small businesses shouldn’t be afraid not to offer buy now, pay later, with the process representing only 1.5 per cent of transactions in Australia, and debit cards being the major form of payments.
Brad Kelly, managing director of Payment Services revealed the gain in average transaction value from offering buy now, pay later is only 5 per cent.
“BNPL is one of the most expensive payment types for an Australian merchant to accept, with an average cost of 4.4 per cent of the transaction, compared to Visa/ Mastercard debit at 0.4 per cent and eftpos at 0.3 per cent,” he said.
Mr Kelly explained the BNPL market is oversaturated and its customers aren’t loyal – over 90 per cent of BNLP transactions come from single-transaction customers, and the average transaction value of long-time users of BNPL is 61 per cent less than first-time users.
The third key theme centred around the rise of mobile payments that it was stated presents a challenge for least-cost routing.
Dhun Karai from Grant Thornton said regulation is often behind leaps in technology, causing small businesses to bear the brunt of costs. He urged SMEs to come together with a unified voice to advocate for least-cost routing to be made available for mobile wallets, a fast-growing payment type.
According to evidence presented at the summit mobile wallets have grown from 2-4 per cent of transactions to as high as 30 per cent in some industries and while some countries have mandated dual tokens on mobile wallets, there is no competition in Australia, making business pay the highest fee.
Ms Karai outlined three steps that need to be taken to ensure SMEs are not unfairly charged in the use of the mobile wallet technology:
- The RBA should enforce software providers to allow both tokens.
- Banks must offer both tokens in their in-app mobile wallets.
- Banks and acquirers must sort out the back book that they have with Apple, Samsung and Google.
- Government should mandate that the default be the one with the lowest cost to the merchant.
According to CMSPI’s Robbie MacDiarmid and Christian Johnson in Australia, only 18 per cent of transactions have the ability to be routed, compared to 82 per cent in France and 61 per cent in Germany.
They said in Australia the RBA puts a cap on interchange fees that save Australian merchants $1,430 million a year. The cap is set to be lowered from 15¢ to 10¢ in 2022.
