RBA Research Reveals Aussies Overpaying Due to Payment Processing Practices

Recent research conducted by the Reserve Bank of Australia (RBA) has shed light on a concerning trend in the Australian financial landscape: businesses and consumers are collectively overpaying by an outstanding $1 billion due to outdated payment processing practices.

The culprit? A lack of adoption of LCR- Least Cost Routing by businesses, a practice where payments default to the least expensive processing network. According to RBA’s findings, businesses that have LCR enabled experience nearly 20% lower transaction costs, particularly benefiting small and medium-sized enterprises.

Despite the availability of LCR to 99% of businesses since June 2023, only 64% have activated it. Larger businesses, often with strategic partnerships are hesitant to adopt LCR, preferring costlier payment networks, thus passing the burden onto consumers through surcharges.

In response, the RBA has issued a stern warning: unless there's significant progress in LCR adoption by June 2024, regulatory action may be on the horizon. However, mandating LCR is considered unlikely due to potential pitfalls such as failed transactions and high reissuance costs.

Industry stakeholders, including the Australian Banking Association, emphasize that while banks are proactively promoting LCR, the ultimate decision lies with individual businesses. With a clear path to significant cost savings for both merchants and consumers, the urgency to embrace LCR cannot be overstated.

As we navigate an increasingly digital economy, it's imperative for businesses to prioritize efficiency and cost-effectiveness in payment processing. Failure to do so not only burdens consumers but also stifles economic growth. It's time for Australian businesses to heed the RBA's call and embrace least-cost routing for the benefit of all.