themselves into the prices charged to consumers. while cash is not costless for merchants to accept, it does provide some competitive pressure on the cost of payments more broadly. so as cash use declines, it is even more important than ever that we ensure competitive pressure remains on the costs of electronic payments to merchants. there are a couple of ways in which this competitive pressure can manifest. the first is the use of surcharging. merchants may not feel that they can refuse to accept a particular payment method. but they may be prepared to signal to customers that it is costly to them by imposing a surcharge for its use. they may not even need to surcharge – in some cases simply the threat of surcharging may be enough to negotiate a lower fee with the payment provider. second, and particularly relevant for card payments, is least - cost routing. least - cost routing puts some power into the hands of merchants by providing them the ability to route a dual - network debit card transaction through the network that costs them the least to accept. in australia, for many merchants, this is the eftpos network ( graph 4 ). the evidence is that the growing availability of least - cost routing has increased competition among card schemes through reductions in interchange fees, and this has resulted in a lower cost of acceptance for card payments for some merchants. graph 4 but while least - cost routing has been available for a couple of years, it has not been widely promoted by the major banks which account for most of the acquiring market in australia. so with many customers switching to contactless in response to covid - 19, some merchants are finding their payment costs rise as debit card payments are automatically routed through the international schemes. it is therefore important that merchants be given the option of least - cost routing. so far, the bank has not mandated that acquirers explicitly offer least - cost routing to all their merchants. but it remains an option that will be considered in the review. in the meantime, we are talking with merchants to understand their experience with payment costs through this period. we will also be considering how transparency of the cost of the payment plans offered to merchants could be improved. ultimately though, if market forces are not generating competition to lower the cost of debit card payments, we may need to consider lowering the benchmarks that serve as a cap on average interchange fees. we need to be on guard against technological lock - out least - cost routing works because the physical cards

being presented at the point - of - sale terminal are provisioned with two networks – so - called dual - network debit cards. but what if there is no physical card, as is the case with mobile payments? how do we encourage provisioning of dual networks in these circumstances and encourage the mobile and terminal technology to enable merchant choice of routing. there are already some disputes in this area. some banks have been choosing to provision only one debit system, so the option to route is being limited. and there are further disputes in the wings on schemedependent tokenisation of ‘ card on file ’ transactions and the problems this might create for least - cost routing. as highlighted in our consultation document, this is a challenging area. but ultimately, if banks or other stakeholders are acting in ways that prevent downward pressure on merchant fees, we may need to consider regulatory options for keeping the cost of electronic payments low. with people carrying less cash, resilience is paramount so far during the covid - 19 period, the electronic payment system has had very few severe outages ( despite the need for providers to quickly adopt different working arrangements ). this is a welcome outcome. given the reduced use of cash during this period, it could have been even more difficult for merchants were there to be disruptions to the electronic payment system. and in the circumstances a loss of access to funds could have caused harm to customers and dented confidence within the community. but this episode does highlight something we have been concerned about for some time – the importance of the resilience of the retail payments system. there are effectively two parts to this – the resilience of the shared infrastructure such as the payment card message and switching infrastructure, and the resilience of financial institutions'own systems. while there have occasionally been system infrastructure outages, most of the outages over the past few years have been in banks'systems. sometimes it has been their account systems affecting the ability of customers to make payments. sometimes it has been their merchant - facing systems so that merchants were unable to take payments. in these cases, often the only fall - back at the point of sale is cash. prior to covid - 19, there was already a sizeable proportion of people who tended to have little or no cash in their wallets. so when disruptions did happen there were stories of people leaving goods at the counter and merchants effectively having to close until the systems were restored. post - covid - 19,