SYDNEY, Feb 5 (Reuters) - Australian regulators would consider intervening to stop banks from automatically directing "tap-and-go" card payments through the world's largest payment processors Visa and Mastercard Inc., the Reserve Bank of Australia (RBA) said Wednesday.
Banks needed to stop automatically directing debit card payments through the two global networks, and instead give retailers the cheaper option to use EFTPOS, a local payment network, Governor Philip Lowe told reporters after a speech in Canberra.
Global card schemes MasterCard and Visa, alongside the major four banks, dominate card payments systems in Australia. EFTPOS is owned by local financial institutions and retailers.
According to the RBA, processing debit card payments - the most frequently used payment method in Australia - through Visa or Mastercard costs retailers more than twice as much as using the local EFTPOS network.
The retailers association estimates this adds up to between A$300 million to A$500 million ($200 million to $340 million) in extra costs per year.
"We have made it very clear to the banking industry that we expect them to develop the functionality to allow the merchant to chose which payment rails it goes through, the international schemes or the EFTPOS schemes," Lowe said.
"If that process doesn't work then we would have to consider a regulatory solution."
Visa and Mastercard were not immediately available for comment.
Low said the banks had promised to develop systems that would facilitate the cheaper route for retailers, and said his preference would be not to have to intervene.
"Regulating here is not the preferred option but it is a fallback option if we don't see the required change."
The RBA is currently reviewing the country's payments regulations to identify strategic issues that should be addressed, including the impact of new payment technologies and new entrants, regulatory technology, and the possible issuance of an electronic form of banknotes.
"One of the possible reasons for the major banks dragging their feet on least-cost routing is that they each have very extensive relationships with the large international schemes – we will be exploring this in the review," Tony Richards, the head of payments policy at the RBA, was quoted as saying in the Australian Financial Review on Wednesday.
A spokesman from the Commonwealth Bank of Australia declined to comment.
Westpac Banking Corp, National Australia Bank and Australia and New Zealand Banking Group were not immediately available for comment.
$1 = 1.4839 Australian dollars Reporting by Paulina Duran in Sydney; editing by Richard Pullin