Originally published in The Daily Telegraph.

A quick ‘tap and go' has made it very easy to make a payment for something we need.

We're not restricted to having the right amount of cash in our pocket or wallet and paying by cheque is now so rare and ancient that it is going to be phased out.

But the simplicity and convenience of making instant electronic payments in person or online masks an incredibly complex structure that creates massive black hole of hidden costs for consumers and small businesses.

Across our economy, merchants are paying higher fees and charges than they otherwise should, worth a staggering $1 billion a year. The Reserve Bank found that, on average, these fees cost small business twice as much as what it costs a large business to process the same transactions.

It's one thing to applaud small business as the engine room of the economy but why do we then put a heavier load on that engine that strangles a productive, innovative and more competitive economy and when cashflow is so critical to small business?

The solution is to mandate a system called least-cost routing so the fee charged to small businesses is always the lowest fee available.

Most of the cards we carry are “dual network,” meaning they typically have a Visa or MasterCard logo and an eftpos logo. When we buy something using the card, unless we instruct the merchant or website otherwise, the usual default is to a more expensive international network.

This is most prevalent when we tap-and-go or buy online.

Sometimes the customer sees the fee but in most cases they do not and it is charged to the merchant who cops it on the chin or passes it on to the customer as a surcharge by adding it to their prices.

Everyone loses - except the banks and payment companies.

We all know the rising cost of living, inflation and sharply higher interest rates are creating intense pressures on our lives. Mandating least-cost routing would be a simple step that could help to ease some of that pressure by $1 billion across the economy if it was fully implemented.

Recent changes to the payments system announced by Treasurer Jim Chalmers are a positive step because they aim to give the Reserve Bank more power to lean in when overseeing the performance of payment service providers, which will ultimately promote stronger competition in the payments market and lower payment costs for small business.

The Reserve Bank has revealed a woeful roll-out of least-cost routing technology by the major banks after repeated urgings to act.

Despite reassuring words, the National Australia Bank has remarkably only turned the system on for 15 per cent of its merchants and the other major banks offer it to well under half their customers.

The banks and major card providers claim customers don't want least-cost routing. That's laughable when they have done all they can to go slow on it. Too many people (both consumers and merchants) simply don't know it exists. For example, how many people know they can choose the payment network in their mobile wallet or how to do it?

And how many small businesses have been supported to make the change that will save them money when margins are under real pressure?

Buy now, pay later providers have no interest in promoting this either. Average transaction costs in 2020-21 were six per cent of the transaction value compared to just 95 cents for the average debit transaction. That's a difference of $496 million.

We need to better explain how the payment system works and have a more transparent fee structure to allow comparisons, support informed choice and promote competition. ASBFEO has mapped out a path to ensure that $1 billion annually is not needlessly gouged out of small and family businesses.

It is time to mandate least-cost routing and have an easy-to-use system to make payments that comes at the least cost for consumers and small businesses.

Bruce Billson is the Australian Small Business and Family Enterprise Ombudsman.