ABA CEO Anna Bligh interview with Andy Park ABC RN

Andy Park 

The Reserve Bank is now calling on banks to do more to reduce the impact of these surcharges on businesses and customers. Anna Bligh, is the Chief Executive Officer of the Australian Banking Association, she joins me now. Anna, a billion dollars in card fees, this is having a pretty significant impact on consumers and businesses and the detrimental one, you’d have to say?

Anna Bligh

Well, I can certainly understand why people balk at seeing a different number on the cash register than what they saw on the menu. And I think most people get very irritated by it. Every time a business processes a payment, there is a cost to processing that transaction in the rental of the terminal, the EFTPOS machine, or the secure virtual rails that the transaction goes across. In order for those to be as safe as they possibly can, as secure from fraud as they can possibly be, and ensure that your payment goes to the merchant or the shopkeeper, that is something that costs money to run that system. I think often when things are invisible to us, we think they’re free, but in fact there is a cost to maintaining a very secure a fast and efficient payment system across the country. What is unusual, though, is that vendors are allowed to say that’s a cost of doing business the same as electricity, or telephones, or, you know, the peanut butter jar that you’re trying to sell.

Andy Park 

Do you think that the merchants should be stomaching that as a cost of doing business, as you said?

Anna Bligh 

Well, some of them do, but you will find what that means is there is probably some little extra amount on the can of baked beans that you’re buying, as like all other costs, like electricity and telephones and rent and staff costs. The difference here is that the Reserve Bank of Australia regulates the fees that can be charged to merchants, and they also regulate that merchants cannot surcharge more. Firstly, they are allowed to surcharge, and secondly they can’t surcharge more than the cost of processing the payment. So what we’re seeing is more, and more, and more payments happening with debit cards, and more and more merchants deciding that they will take the option to surcharge, and I think there is a real question about why some merchants choose to do that, and why so many others manage it as part of the normal cost of their business.

Andy Park 

It does seem to be the smaller, independent kinds of shops that seem to pass it on. In my experience anyway. I’m sure it’s factored into the cost of doing business for large chains. This reserve bank system called least cost routing. Tell me what it means in terms of the how businesses will automatically default to the lowest cost card network. Talk to me about that.

Anna Bligh 

So I think a simple way to conceive of it is like railway tracks. There’s different rails that take Visa, another rail that takes MasterCard, and another rail that takes an EFTPOS payment and they each cost slightly different. MasterCard and Visa, not banks, set the price on their rails in line with the RBAs requirements, and what that means is that the bank has to enable the terminal that you tap on, or put your card into, to default to the cheaper rail. Now it’s not as simple as that, because one of them is percentage, and one of them is a flat fee, so it depends on whether you’re selling coffees, or whether you’re selling washing machines, which one will be the cheapest. But banks have now provided almost 99 per cent of merchants with the ability to set that default. They’ve just released data this morning that shows that we now have 65 per cent of all merchants are using that system. So it’s available to 100 per cent of merchants, 65 per cent of them are now using it. But for merchants, again it’s about choice. For some merchants price is not the only thing that they value. So you can get a telephone, a package for your phone, where you know with absolute certainty what you’re going to be paying every month. Banks do offer a package deal. You get the terminal rental, you get the rails and you pay a flat fee every month. For some merchants, they would prefer to know exactly what they’re going to be paying every month. Other merchants are quite happy with the up and down because they’ve set it at the default one which will cost them the least amount.

Andy Park 

So do the banks make less money if businesses use more expensive Visa and MasterCard terminals rather than the EFTPOS, terminals don’t they. So it’s arguable in the sense that it’s in the bank’s interest not to help businesses transition to these little least cost systems as it’s been called?

Anna Bligh 

No, that’s not accurate. Visa and MasterCard, of course, built their own rails, and you’re paying a fee to Visa and MasterCard as well as part to the bank. So for banks, the income is, I think, almost the same or identical. What we are seeing though, is that the number of merchants that have now taken it up, because it’s not compulsory it is actually up to the merchant to choose what suits their business best, has increased by 10 per cent in the past six months, and the cost of merchant fees have decreased over the last 12 months.

Andy Park 

I’m curious to get your response before we lose you on this low cost routing system. The RBA Governor Michelle Bullock has threatened to mandate this system if the banking system sector doesn’t meet the target of 80 per cent of businesses by the middle of this year, do you expect that your members can meet that target?

Anna Bligh 

Well, banks actively promote least cost routing to their merchants. What the Governor would be mandating, is mandating small businesses to a particular way of processing their payments. So that’s really a decision for the Reserve Bank and for those organisations that represent small businesses. I know that there are many businesses that like to make the choice themselves, but it won’t make any difference to banks. If it’s mandated for small businesses, banks would have to make sure that they can advise those small businesses who are their customers how to do it, and how best to do it. But it is available to every single merchant. Well, actually sorry, 99 per cent of merchants can do it now, all I have to do is switch over from their current system to a least cost routing system. I think the fact that they’re not doing it 100 per cent tells you that there are some things that some merchants value. Some of the rails for some kinds of payments, for example, are more secure, have bigger protections from fraud, and are more likely to provide you with a cash back if you’ve had a problem with a payment. For some merchants, particularly those online. Those are things that they value for the security of their customers and their business. So, I can certainly understand that the Governor wants to see you know, surcharging come down as much as it possibly can. I think we’d all like to see that. And, you know, I would encourage merchants to think about this as a normal part of doing business. People are not going to stop tapping and going, and there’s no really no reason why they’re not seeing this in the same way as they do their telephone bills, their electricity bills, it’s just that they’re allowed to surcharge for this if they were allowed to surcharge for their telephone bills. I think probably some of them will do the same, but not all of them.

Andy Park 

We will have to leave it there. Anna Bligh is the Chief Executive Officer of the Australian Banking Association. Thanks for your time.

Anna Bligh 

Thank you.

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