Small business is frustrated by the slow pace of “least-cost routing” (LCR) by the banks which would allow merchants to choose to send tap and go payments down the cheaper Eftpos payments rails rather than through the global schemes. But Mr Milliner said, “it’s important to make sure [any merger objections] are not a proxy for other issues”. He said LCR – a hot-button political issue – was accelerating and would continue uninterrupted.
With the Reserve Bank mandated to keep payment costs for merchants as low as possible, the schemes have pledged that the merged group will be made to focus on low-cost outcomes for retailers.
“Payment costs won’t go up as a consequence of this merger, and a key objective of the new entity will be to deliver low-cost payments to retailers, businesses and their customers,” says a presentation being shown to retailer groups this week obtained by The Australian Financial Review.
The 13-member board will comprise the four major banks, two other banks, three non-banks (such as Coles and Woolworths), and four independent directors. For the independents, criteria will include experience in service-based industries which are end-users of the domestic payment systems including small business.
It will be one vote, one member rather than the Eftpos structure where voting power is based on transaction volume, giving the banks more sway.
In addition, two advisory councils will be created and one will include professional associations, including COSBOA, the Australian Retailers Association and FinTech Australia, to feed concerns up to the board.
“We don’t want to stand in the way of progress but this can’t be allowed to benefit a few,” said one retailing representative after the meetings.
Under the proposed deal, which requires ACCC authorisation – each of Eftpos, BPay and the NPP will continue to manage its own scheme, operations and infrastructure. Eftpos will continue as a standalone brand and scheme.
The banks have also agreed to maintain “proscribed services” already under development by Eftpos through to June 2022. These include building a digital wallet and enabling payments using QR-codes, as banks seek to compete with fintechs including Afterpay and Zip. The banks committed to support the rollout, either via mandates connected to participating in the Eftpos scheme, or via a governance mechanism for the board of the NewCo. To make service changes in the future, if two directors disagree, then they will need approval from a 75 per cent vote of the board representatives of users of the service.
The banks are pushing for the merger – with tacit support from the Reserve Bank, which is a shareholder in the NPP – to remove the siloed and fragmented processes that have led to dysfunctional decision making on investment and strategy. The move comes as digital payments have become one of the most hotly-contested areas in global investment. The three schemes were “initially very much a product of the banks and the banking system but we are moving to a broad-based system and governance,” Mr Milliner said.
”We think competition will be improved. The real competitors are Visa and Mastercard and other tech players coming into the market. So this will provide a stronger domestic-based competitor to those international schemes.”
As banks decided to issue Visa or Mastercard under opaque distribution deals, more debit card transaction volumes have been pushed to the Visa and Mastercard networks, cutting Eftpos’ share from 80 per cent to 30 per cent in the last decade. On the whole, the global schemes are more expensive for merchants to use. They also have a near-monopoly over online purchases.
Small business users of Eftpos are desperate for a competitive counterweight to the global schemes to be maintained in the market, and want cost savings and efficiencies from the merger to be passed through.
Mr Milliner said, “this is not about a cost-saving merger, this is about improving innovation for market conditions and alignment from back to the front.” Retailers “can’t use this to change LCR but it will provide a more certain future about the services provided by Eftpos, the sustainability of Eftpos and the development of a strong local competitor, which we think is pretty important for the overall payments ecosystem.”
The payments schemes submissions to the ACCC will be made on or near March 12 and the ACCC could decide on the deal by June 2021 at the earliest.