There is an estimated annual $6.9 billion in card fees charged by Australian banks, payment platforms and global card companies.
That’s a whopping amount when you consider that the EU and the UK have banned payment surcharges on credit and debit cards years ago, and more recently the US Department of Justice has sued Visa, accusing it of antitrust violations that affect “the price of nearly everything”.
The consensus for legislation in Australia to step in and stomp out payment surcharges is slowly gathering pace, but retailers are not waiting for the change.
Chemist Warehouse, for example, the pharmacy and retailing giant headed for a merger with Sigma Healthcare, is now attempting to skirt around big credit card fees by introducing a new way to pay using QR codes.
The company reportedly spends millions in payment fees every year. “Because we are a discounter, and work on low margins, these transaction costs represent a big part of our potential profit,” Jack Gance, the company’s chairman, told The Australian Financial Review.
“With the volume we do, we are paying more than $10 million a year to the card companies for the privilege of them doing the transactions for us. Even though we don’t surcharge, we have to cover the cost – so that is built into the margin that we charge.”
Chemist Warehouse is introducing its new QR payment method online and in stores early next year which involves customers taking a photo of a QR code instead of paying with a card or tapping a terminal, a process known as Pay by Bank.
This new payment system has been created by Waave. The startup was acquired recently by Banked, a UK-based fintech backed by National Australia Bank and Citi.
Payments under the method will move across a domestic system known as the “new payments platform”, built by the major banks and the Reserve Bank of Australia (RBA) to compete with Mastercard and Visa.
The new system includes PayTo which allows merchants to extract funds straight from a customer’s bank account.
Once enabled, customers won’t need a card, just their mobile phone. There’s no need to create an account or use another app.
Rather, purchasers will take a picture of a QR code displayed on the payment terminal and authorise the payment by tapping a button on their handset.
The costs are still being worked out , but will be no more than Eftpos, which charges around 30¢ for $100 of spending. That figure is around half the cost of taking a debit payment from a Mastercard or Visa card.
“For the past two years we have been having conversations educating large enterprise merchants about the opportunities of Pay By Bank,” said Ben Zyl, co-founder of Waave.
“And in the last six months, those merchants have gone from listening to actually planning and putting on their road maps to implement over the next 12 to 18 months.”
There are inherent challenges with the new system. Many payment terminals will need to be upgraded so they can display QR codes. In the case of Chemist Warehouse, it already uses Quest payment terminals which have QR code functionality.
A bigger litmus test will be getting consumers to buy into the idea. “Visa and Mastercard are so easy to use – there is no friction. We don’t want to surcharge, but the difficulty is to explain to the consumer this is in their interest,” said Gance.
Customers will have to first set up the “mandate” that links the bank account to the retailer’s. “Pay by Bank will overtake other payment methods in the coming years globally. It will be seen as a low-cost option over time, and won’t be more expensive than debit,” said Brad Goodall, co-founder of Banked. “The job now is to get the best consumer experience, so you can let the customer open the mandate.”
Meanwhile, the RBA has also reportedly brought forward its review of merchant costs and surcharging, and hopes to release a consultation paper by the end of the year. Its review will consider whether surcharging should be banned.
“People don’t use cash any more, so everything is just getting surcharged. It’s prevalent in the retail industry, particularly hospitality,” RBA governor Michele Bullock told a parliamentary committee recently.