How low can tap and pay fees go?
There is very little public information about how much card issuers have to pay mobile wallet providers, but media reports indicate the cost was more than $100 million a year.
Australians are great adopters of technology, with tap and pay transactions now making up much more than half of all in person transactions.
So, it is a bit confronting to find out that the Reserve Bank of Australia, which regulates the payments system, is unsure of how its powers apply to some aspects of the burgeoning area.
The issue is the digital wallets that consumers are using to make their tap and go payments which are usually fairly new players in the payments space such as Apple Pay, Google and Samsung.
What the RBA is unsure about and might need some legislative assistance from the Federal Government to clarify is how the pricing structure behind the tap can become more transparent.
How much does tap and go cost consumers?
RBA head of payments policy Ellis Connolly told a business summit last week that increased transparency could help to boost efficiency and competition for payments using virtual wallets as their use skyrockets during the broader transition away from cash.
Mr Connolly said that at the moment: “The mobile wallet providers require card issuers to enter into confidential agreements so that their customers can use these wallets to make card payments.”
In the early days of digital wallets, Australian banks fought a bit of a battle with Apple over fees to use its digital wallet, but eventually they fell into line and signed on with the big wallet providers as customers began to pressure them to be able to use the mobile technology.
Over time, any bank without an agreement with one of the large digital wallet providers might lose business quite quickly as customers changed to using cards that worked where they shopped.
That enabled the big digital wallet players with widespread access to people’s phones and their near field communications capacity to grab a large market share quickly and charge banks for the privilege.
Mr Connolly said there is very little public information about how much card issuers have to pay mobile wallet providers, but he said media reports suggested the cost was more than $100 million a year.
“Given these developments, we would support steps to promote transparency of the payment costs associated with using mobile wallets,” he said at a recent conference.
The issue here is that retailers are being hit with higher charges for providing payment services – costs that are likely to be passed on to consumers whether they know about them or not.
It is currently very rare for customers to be charged a premium for contact free transactions using credit or debit cards.
ALDI is one of the few retailers that does this – if you insert a card and pay with eftpos there is no fee while all tap and go transactions incur a 0.5% surcharge, even for debit cards.
“Rather than ALDI inflating prices across the board to compensate for the credit card acceptance costs (like most of the retailers do) ALDI instead allows customers to make the choice as to the payment method they prefer,’’ the company said.
“This allows customers who choose the lower cost method of payment, to receive the direct benefit by way of lower prices.’’
Most other retailers just wear the extra costs of contactless payments and add them into prices, with surcharges just applying to credit cards.
Will the RBA find the answer?
Whether the RBA can force these costs out into the open is still a running question but there is little doubt that making the cost of using digital wallets known to customers is likely to lead to more competition on price.
This is particularly important given that many customers shifted to electronic payments during the pandemic when cash payments were discouraged.
Last year’s RBA consumer payments survey found that the use of cash for transactions has halved from 26% to just 13% over the past three years, with about a third of consumers using phones to make contactless payments.
Payment costs rising despite technology
“The shift to online commerce has contributed to higher payment costs,” Mr Connolly said.
Mr Connolly said there was some uncertainty about the extent to which the RBA could apply its powers to digital wallets and other new types of payments with the Federal Government set to release a strategic plan this year to update the way the payments system is regulated.
Naturally it is one thing to develop a plan but quite another to regulate one given that the government would need to get any legislation passed through Parliament.
Until then, Mr Connolly said the RBA would continue to talk and co-operate with the payments industry as the final detail on how the digital wallet section of it are to be regulated and made transparent.