Australia's payment landscape is evolving rapidly, tackling the multifaceted challenge of transaction fees that merchants and businesses confront daily. Paving the way with a proactive strategy, the Reserve Bank of Australia (RBA) championed the introduction of the Least-Cost Routing (LCR) initiative. This endeavour is specifically geared towards reducing transactional overheads and fostering an environment where businesses can prosper with reduced operational costs.
Summary of the post
Australia's Payment Landscape Evolution:
Rapid changes in payment methods and transaction fees challenge businesses daily.
Reserve Bank of Australia (RBA) introduced Leas Cost Routing (LCR) to reduce transactional costs and promote business growth.
RBA'S Commitment to LCR:
RBA requires that acquirers and payment facilitators must offer LCR and report to the RBA regularly.
Online LCR challenges:
LCR is widely available for card-present transactions but not activated for many merchants.
Slow progress in online LCR adoption; few providers offer this service as of June 2023.
Merchants encouraged to inquire about LCR availability and consider alternative providers if not accessible.
IPSI's initiative:
IPSI supports LCR, actively offering and advocating online LCR solutions to customers.
IPSI aligns with RBA's vision for cost-saving, efficient, and growth-focused payment solutions.
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Least Cost Routing (LCR) and the RBA's Unwavering Commitment:
The RBA, in its dedication to fostering a more equitable and efficient payment ecosystem, has been vocal in its endorsement of Least Cost Routing. The RBA strongly supports the provision of least-cost routing functionality and has been actively and consistently monitoring the industry's efforts in making this feature universally accessible to merchants. Their vision is clear: provide merchants the flexibility to direct dual-network debit card transactions through the most cost-effective route, ensuring a tangible reduction in transaction expenses.
The RBA clearly indicated that “all acquirers and payment facilitators that provide card acceptance services to merchants are expected to offer and promote Least Cost Routing to their merchants. Acquirers and payment facilitators are expected to report to the Bank every six months on their least-cost routing offerings, and on merchant take-up of least-cost routing.”
Follow the link for more information about the RBA’s policies on Least Cost Routing (LCR) in Australia.
Decoding Least Cost Routing in Australia:
When initiating a debit transaction in Australia, there are three potential processing pathways: eftpos, Debit Mastercard, or Visa Debit. While the end result for the customer remains unchanged — their account gets debited — the financial implications for the merchant are influenced by the chosen processing network. Historically, eftpos has often been more economical compared to its international counterparts, positioning Least Cost Routing as a beacon of fiscal efficiency and choice for merchants.
Recent development from Visa and Mastercard:
Recently Mastercard and Visa have made unequivocal commitments to the RBA in regards to Least Cost Routing. Effective 1 July 2023, they have assured non-engagement in any 'tying conduct' with their debit and credit card services. This assurance ensures that the competition within debit card schemes remains pure and centred on their inherent offerings, further enhancing the virtues of Least Cost Routing.
The adoption and challenges of online Least Cost Routing in Australia:
In alignment with its commitment to Least Cost Routing, the RBA was pushing for a widespread adoption of least cost routing by the end of 2022. While Least Cost Routing is now widely available to merchants for card-present transactions from a technical perspective, the functionality has not been enabled for many merchants.
When it comes to online (card-not-present) Least Cost Routing, progress is even more sluggish. According to the RBA's latest data as of June 2023, only a few providers have adopted online Least Cost Routing, indicating that the industry largely fell short of the RBA's target for offering and promoting this functionality to merchants.
According to the RBA: “Merchants should ask their payment services provider about the availability of least-cost routing. If merchants are unable to access least-cost routing from their current payment provider, they may choose to consider alternative providers.”
IPSI’s Affirmative Action:
Echoing the progressive intent of the RBA, IPSI wholeheartedly backs the Least Cost Routing movement. Recognising its potential to bring about a paradigm shift in transaction economics, IPSI has been proactive in both offering and advocating online Least Cost Routing solution to its customers. The overarching objective remains consistent: to realised significant operational savings for our clientele.
In supporting the RBA's Least Cost Routing advocacy, IPSI's commitment to pioneering efficient and economical payment solutions stands reinforced. It reinforces our role as a pioneer in the payment industry, thriving to provide solutions to merchants that save costs, efficient and enable business growth.
If you’re interested and would like to discuss online Least Cost Routing, and the technical options available, please contact us at [email protected] or call 1300 975 630.