Tech platforms like Zeller and Square are defending their pricing models, after the announcement of a Reserve Bank of Australia (RBA) review that could dramatically alter how they charge merchants for card payment services.
On Tuesday, the federal government announced its proposal to ban retailers, cafes, and restaurants from surcharging their customers for the cost of accepting debit card payments.
But banning surcharges without addressing the underlying cost of payment acceptance would force businesses to swallow those fees, or pass them on to consumers in the form of overall price hikes.
Enter the Reserve Bank of Australia, which launched its own review to consider lowering the costs borne by retailers and hospitality businesses.
Depending on how a merchant processes card sales, multiple parties can take a cut of their overall transaction value.
This includes the banks, network providers like EFTPOS, Visa, or Mastercard, and, increasingly, payment tech platforms like Zeller, Square, or Tyro.
The average cost of accepting an EFTPOS debit payment is 0.5% of transaction value, while Mastercard and Visa debit transactions may cost 0.5% and 1% to process, according to RBA estimates.
But payment tech platforms often charge higher ‘blended’ or ‘weighted’ transaction fees, covering both debit and credit card payments across multiple payment networks.
Homegrown platform Zeller charges a base rate of 1.4% per transaction, regardless of which card a customer uses at the checkout.
International competitor Square charges 1.6% of the transaction value.
Now, in the middle of a cost-of-living crisis, the RBA is contemplating how to drive down the cost of debit payments.
One proposal is to mandate differentiated pricing, depending on the payment network used in each transaction.
Put simply, this would un-‘blend’ and un-‘weight’ the fees charged by platforms like Zeller or Square.
“This could lead to lower debit surcharges at some merchants, somewhat alleviating consumer concerns, while also improving price signalling,” the RBA says in its issues paper.
“However, as above, this could require significant change from [payment service providers], especially those that offer single-rate plans.”
The RBA is also pondering whether to ‘tighten’ the definition of payment acceptance, banning merchants for passing on surcharges related to “other software services that are bundled into merchant service fees.”
Doing so “could help to both lower surcharges and improve price signalling, but would potentially increase the complexity of the surcharging rules.”
Zeller and Square believe the debate should focus on more than costs alone.
Speaking to SmartCompany, Zeller co-founder Ben Pfisterer said merchants appreciate its pricing model for the simplicity it provides.
“What merchants were screaming out for was clarity, predictability and simplicity in their charging, which is why the weighted charging method for acquiring services became so popular so quickly,” Pfisterer says.
Any change to the model would be disappointing, he continues.
“Merchants shouldn’t have to worry about who’s walking in the door,” he says.
“‘What card are they pulling out? Am I going to pay more or less?’
“They said, ‘I just want to pay one rate. You work out blended rate and charge me that, and I don’t want to have that awkward discussion with a cardholder.’”
Untying those pricing streams would be difficult, but not impossible for Zeller, Pfisterer continues.
“If that’s what the outcome is, we’ll move to that, but it would be a very regressive and disappointing step.”
Modern payment tech providers offer more than card acceptance services alone, with add-on features like banking services, loans, and shift management software growing out of POS platforms.
Square, which offers merchants access to a full ecosystem of features — some of which require monthly fees, on top of transaction costs — also defended its pricing model.
“The simple and transparent pricing model that Square pioneered has driven increased innovation and competition in Australia, and helped provide better, fairer outcomes for small businesses which were previously underserved or were unable to accept card payments at all,” according to a company spokesperson.
“The Government should continue to foster competition and allow small businesses to have the right to choose payment providers and products that work best for their needs.”
In a statement provided to SmartCompany, Jon Davey, CEO of Tyro, said the RBA should focus on scheme (card) and interchange (bank) fees “which significantly drive up the cost of card acceptance and put pressure on small businesses.”
But Davey also supports the RBA’s focus on how software costs are bundled into merchant fees.
“It’s also great to see the RBA looking at software-inflated bundled fees, which shouldn’t be passed onto the consumer,” he says.
As the RBA opens its consultation, even newer players on the payments scene are sharing an alternate view on ‘blended’ pricing.
Ben Zyl is co-founder and CEO of Waave, a ‘pay by bank’ provider offering an alternative to the debit and credit networks.
Chemist Warehouse is among its biggest Australian adopters, using QR codes in-store to help customers bypass traditional POS systems entirely.
In a statement, Zyl says the review is “a positive and inevitable change for Australian consumers, one that will bring us into line with most other developed economies”.
“We await the detail on whether fixed, blended and bundled pricing should be banned, as we expect the card companies will lobby to ensure ongoing loopholes that allow them to continue imposing blanket ‘payment service fees,’” he continued.
“If not, already stretched merchants will have to continue wearing these costs.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
