Huge Cut To Visa Debit Interchange Shakes Up Payments Market In Australia

A 90 percent cut to Visa Debit interchange fees on certain transactions in Australia has issuers and acquirers scrambling to reposition themselves in a rapidly changing market.

As of October 1, 2023, Visa has slashed its interchange fees on domestic debit transactions as part of its new Acquirer Small and Medium Business (SMB) programme.

The programme will deliver a “competitive rate” for eligible merchants and will contribute to the “continued growth and acceptance” of SMBs on the debit network, Visa said.

Although participation is optional, acquirers must fulfil certain requirements to enrol their merchants on the programme.

The requirements are outlined in Visa’s Australia Acquirer SMB Program Guide, and include merchant volume indicators (MVI), data integrity standards and operational certificates.

New rates on the block

The SMB programme introduces new rates across three types of transactions: card-present; card-not-present tokenised under A$30; and card-not-present non-tokenised under A$30.

The rates could unlock significant savings compared with what SMBs are currently charged for the same transactions outside the new programme.

To take an example, using Visa Debit’s Standard Rate, a merchant could be charged up to 22 cents on a card-present transaction of A$100.

However, under the new rates, that same transaction would cost the merchant 2.2 cents — a saving of more than 90 percent.

Similar savings have been introduced for card-not-present transactions, and this appears to be an area where Visa Debit is eager to reclaim market share.

eftpos delivers

In July 2022, eftpos, Australia’s low-cost domestic debit network, launched a long-awaited online payment processing solution.

This allowed eftpos to compete, for the first time, for card-not-present transactions, as well as card-present transactions.

By November 2023, as confirmed by eftpos operator Australian Payments Plus (AP+), eftpos was processing more than 25 percent of card-not-present debit transactions in Australia.

This amounts to $A30bn in revenue to eftpos — revenue that has been gained from Visa Debit and Debit Mastercard.

Grant Halverson, CEO of Australian payments consultancy McLean Roche, said that Visa’s response to the loss of market share has been “unprecedented” and “highly aggressive”.

However, he also pointed out that Visa does not stand to lose as much from the lower interchange fees as do other entities in the payments chain.

“The real losers are the card issuers,” he told Vixio, “who will see their revenue go from 20 cents to 2 cents per transaction, while Visa still clips the ticket.

“The big question is will acquirers pass on the savings to merchants or just keep it for themselves?”

A question for acquirers

As noted above, there is no obligation for acquirers to join the new SMB programme, and it remains to be seen which ones will do so.

The country’s largest acquirers — the Big Four banks — are unlikely to join the SMB programme, as they are also the country’s largest debit card issuers and they stand to lose the most from loss of interchange fees.

Both ANZ Worldline and National Australia Bank (NAB) told Vixio that they have not yet made a decision, and are currently considering what types of merchants the SMB programme would benefit.

Meanwhile, local news outlet Banking Day has reported that Westpac has “ruled out” the SMB programme, while Commonwealth Bank (CBA) has given it a “lukewarm” reception.

At present, almost 70 percent of debit cards in Australia are issued by the Big Four plus Adelaide Bank.

The other deterrent for the Big Four is that they are among the Australian banks that together own AP+, and therefore have a revenue interest in favouring eftpos over Visa Debit.

At the other end of the market, however, smaller acquirers such as Stripe, Square, Tyro and Adyen are likely to take up the SMB offer under their “flat rate” pricing models.

Brad Kelly, managing director of Australia's Payment Services consultancy, said that smaller acquirers could “significantly bolster their revenue” by doing so, while also passing on savings to merchants.

Halverson added that such a move by the smaller acquirers would likely tempt merchants to leave the larger acquirers. “Debit is the biggest payment method, so any savings are worth it,” he said.

The only way is down (for interchange)

Whatever the outcome, Halverson said Visa’s intervention highlights a wider trend towards lower interchange fees across Australia's debit card market.

In September 2022, the Reserve Bank of Australia (RBA) published data showing that debit interchange fees have been trending down, with minor “fluctuations”, since 2017.

At the same time, the growth of the New Payments Platform (NPP), an instant account-to-account payment system operated by AP+, continues to put downward pressure on interchange fees.

After launching in 2018, total NPP volume has grown at a rate of 23 percent per year, and by mid-2023 its total value transacted had reached more than A$1.2trn.

At present, according to Halverson, consumer spending makes up about 18 percent of the total spend on the NPP, making it the third most popular payment method in Australia after debit cards and credit cards.