Stephen Ferguson's recent article is worth your time because it explains publicly, in plain language, why Australia's digital payments system is fundamentally unfair. With the Reserve Bank of Australia (RBA) now nearing a final decision on merchant card payment costs and surcharging, the timing of this conversation couldn’t be more important.
As someone who supplies and consults for small businesses, I spend a lot of time listening to owners talk about rising costs, shrinking margins, and "death by a thousand fees." I’ve helped my clients save significant amounts on their EFTPOS and credit card fees simply by auditing their systems. Our thoughts on the RBA matter are in our submission here.
What I liked about Ferguson's article is that it puts a spotlight on a problem many retailers can’t easily see from behind the counter: the hidden mechanics of these fees. However, from a supplier's perspective, there are a few points I need to add to the debate.
The Great Rewards Rip-Off
The most glaring issue in our payment system is the deep unfairness of who actually pays for consumer rewards. It is completely unjust that every day, merchants are forced to foot the bill for the luxury benefits enjoyed by premium credit card users.
When a customer taps a high-tier credit card, they earn frequent flyer points, airline lounge passes, and free international travel insurance. But the credit card company does not pay for those perks. You do.
In reality, processing a rewards credit card can be three to five times more expensive than a basic debit transaction. If you are on a "blended" merchant rate, you are actively subsidising these premium costs every time a customer pays with their own money via debit.
I doubt consumers will save much
As the RBA decision looms, you will see big headlines about a surcharge ban "saving consumers," with figures like $1.2 billion a year being thrown around.
Personally, I am highly sceptical that most shoppers will actually feel that in their weekly budget. As I stated in our recent industry submission, these massive processing costs will not just vanish. If merchants are forced to absorb them, those costs will inevitably be passed on to higher shelf prices and greater bank fees elsewhere in the system.
What I’d add to the article
While Ferguson champions Least Cost Routing (LCR), we need to acknowledge that Dynamic LCR is not consistent across banking providers, and that is a massive problem.
The banks use entirely different types of LCR—such as "binary" or "threshold" routing—and these older methods do not deliver the same financial outcome for small businesses as true, real-time Dynamic LCR. Just because one bank states it has "LCR enabled" does not mean it operates the same way as another bank's system. This lack of standardisation desperately needs to be addressed.
Furthermore, we cannot ignore the rapid rise of premium debit cards, like Platinum Visa or Mastercard debit options. These cards offer consumer rewards, but they still only cost merchants around 0.5% to 1% to process. Why should they be lumped into the same high-fee bucket as premium credit cards?
Take Action and Protect Your Margins
I would not suggest waiting around, hoping the RBA or the big banks will voluntarily fix a system that is currently so profitable for them. You need to protect your own margins right now.
I strongly recommend you contact your EFTPOS or credit card provider this week and ask them these three specific questions:
- Am I currently on a blended rate?
- Do you provide true, real-time Dynamic LCR, and is my terminal actively using it?
- Can you provide a monthly report showing the percentage of my eligible debit transactions routed via the lowest-cost network?
Have a read of Ferguson's article when you get a chance, and let me know what you think in the comments below. Have you checked your LCR status recently?
Written by:
Bernard Zimmermann is the founding director of POS Solutions, a leading point-of-sale system company with 45 years of industry experience, now retired and seeking new opportunities. He consults with various organisations, from small businesses to large retailers and government institutions. Bernard is passionate about helping companies optimise their operations through innovative POS technology and enabling seamless customer experiences through effective software solutions.
