The danger of banks white-labelling scheme-owned payment gateways
When a bank runs a scheme-owned payment gateway, don't expect it to route to Eftpos — and here's why that costs merchants.
Many of you will know what a scheme is, but for those who don’t: schemes include Visa, Mastercard, Amex, and so on. A simple rule for understanding how schemes will act is to assume they’ll try to maximise profit regardless of whether it’s at the cost of the merchant (the store owner) — luckily, we have the RBA and ACCC to keep them in check.
Banks don’t build their own gateways
Every time a payment is made online (i.e. not on a terminal), a payment gateway needs to process it. You may have heard of the following gateways operated by the banks: eGate (ANZ), bPoint (CBA), NAB Transact (NAB) and Paywave (WBC). But what you may not know is that most payment gateways operated by banks — and many other companies — are white-labelled versions of existing gateways. For instance, NAB Transact is a white-labelled version of SecurePay (Australia Post).
Many of the banks’ gateways are lagging behind, so banks are currently shopping around to update their core gateway (ANZ, NAB) with newer ones. Their current gateways are old, slow, often XML-API based, have very few features, and have lacked development. If you’re an enterprise business, or you want to be in the 21st century with ApplePay, GooglePay and the like in a single gateway solution, then right now your bank is unlikely to be able to deliver.
Where the danger comes in
So the banks operate payment gateways, and normally they don’t build these themselves. It’s about economies of scale — and the banks are hopelessly slow at keeping up with technology, needing a meeting about having a meeting. So white-labelling makes sense and is generally a good thing.
The danger comes when the gateway a bank is looking at to replace its core gateway is run by the schemes (predominantly Visa and Mastercard). This is where things can — well — not necessarily go in favour of the merchant.
The problem for the merchant is that I can’t see scheme gateways enabling features that allow competition and push volume away from their own rails (i.e. processing through Eftpos rather than Mastercard). That could end up costing merchants through an inability to access innovation that drives down costs. Visa and Mastercard have the desire and economies of scale to build a solid gateway and keep it up to date, but they’re notorious for looking after their own bottom line. There are a few major branded gateways owned by the schemes: Cybersource (Visa), MIGS (Mastercard), MPGS (Mastercard) and TNS (Mastercard). I know of several banks that either have, or are looking to, white-label these gateways as their main payment gateway.
Why LCR Online may stall
Least Cost Routing Online isn’t being taken up by the banks in any hurry. They’re slow-moving when it only reduces their profitability and that of their pals (Visa and Mastercard). And why would a payment gateway owned by Visa or Mastercard ever build in the capacity to route transactions to Eftpos? It would be like promoting your competitor.
I also don’t believe the RBA will come to the rescue like it did for Card Present (terminal) payments. For LCR Online to work, you need both the payment gateway and the acquiring bank on board. The RBA will likely end up forcing acquiring banks to be enabled for LCR Online, but I can’t see it mandating the hundreds of gateways in operation to have this capability — it would be too big a task. So what may happen is banks being enabled for LCR Online, but their branded gateways not being enabled, and it never actually rolling out to merchants.
How I see this ending
I see Enterprise clients moving away from the bank gateways to third-party gateways, while the SMEs — who can’t afford agnostic advice, or aren’t sophisticated enough to know better — end up on a bank gateway that isn’t designed to save the merchant if that comes at the schemes’ expense.
If you’re on a bank’s gateway, it may be time to shop around. Contact me for a chat.
FAQ
What is a payment gateway? It’s the service that processes an online (card-not-present) payment. Many are operated by banks but are actually white-labelled versions of another provider’s technology.
Are bank payment gateways really white-labelled? Often, yes. For example, NAB Transact is a white-labelled version of SecurePay (Australia Post). Banks tend to license gateway technology rather than build it themselves.
Will Least Cost Routing work online? Not reliably yet. Acquiring banks may be enabled for LCR Online, but a scheme-owned gateway has little incentive to route transactions to Eftpos — so the capability can stall at the gateway even if the bank supports it.