Disconnected: Payment Challenges for Regional and Remote Businesses

 Regional communities are tough. The people are tough, the environment is tough. They know how to make the most of a challenging situation. Regional communities are also an unmissable part of the fabric of society, and an important economic contributor to the country.

So it is no surprise that we don’t hear much in the way of complaints about payment acceptance challenges by regional and remote businesses. Because the way they handle things is to just get on with it. But we can all do better.

These challenges are across all types of payment – let’s broadly bucket payments into cash and digital. What are the challenges that regional businesses are facing?

Digital payment challenges

Depending on which measure you use, digital payments account for between 70% and 85% of in-person payments now. Therefore, there should be an expectation that digital payments are reliable and cost-effective.

Firstly, merchant fees. There has been plenty of attention recently on the disproportionality of merchant fees on small businesses, of which many in regional communities are. These costs have an impact, either for the business that absorbs them, or the consumer who makes the purchase – either through a surcharge or a pass-through via increased prices.

Secondly, reliability of telecommunications. Taking Australia as a case in point, reliability of regional telecommunications is such that there is a standing triannual government review to identify problems and recommendations for action. While in the city an internet outage means that affected workers go home early and there is a mild panic, in regional areas it’s more likely to be called ‘Tuesday.’ And if a business can’t accept payments because of regular or persistent outages, it means it can’t operate.

Cash payment challenges

While digital payments have continued to grow as a proportion of total payments, cash has historically had a higher preference in regional and remote communities – perhaps in part due to the reliability issues of digital payments. However, cash has its own challenges in regional areas.

A challenge that has always existed but that has become more pronounced is the relative cost of cash services for those businesses that use an outsourced cash logistics provider. On the one hand it’s simple maths – a cash logistics truck servicing a regional area can do less jobs on a run, so the cost per job and the resultant price will invariably be higher. But as cash use declines, the unit cost for cash acceptance will grow in orders of magnitude. This is because the logistics cost is essentially fixed in real terms, but for a business that cost spreads out over a lower total amount of cash payments. There is no easy fix to this, but there are ways to optimise the cost base to make the cost of cash acceptance more manageable from a business perspective.

The second challenge is for the many businesses that prefer to do their cash banking with their local bank. The recent senate inquiry into regional banking (the report is available here) came about because of the continuing decline in regional bank branches. Again, this is a challenge where there is no easy solution. When looking at some of the reporting of activity in branches that have been closed, they are essentially a very expensive shop front handling single digits of customers per day. But when the last branch in a town closes, it can put immense pressure on the affected community. And while the Australia Post Bank@Post model helps to some extent, it is not in a state where it can scale effectively to be a genuine replacement for branch banking.

Where to from here?

There is no easy answer. But some areas that need attention include:

• Merchant fees for small businesses, particularly in regional and remote areas. These need urgent address, whether through the proper implementation of least cost routing, revision or fee tables by card schemes, or many other possible measures Reliability of telecommunications.
• While improvements are a nationwide challenge, the payments industry can help through developing offline payment solutions. The technology is there, the will it seems is not
• Cash logistics and branch banking. The cash cycle continues to carry widespread inefficiency. If this is dealt with effectively it would mean that more businesses would have access to more proximal and more cost-effective cash solutions

Questions? Reach out.