The tap and go boom has created a significant rise in some retailers' debit card costs. Credit:Glenn Hunt We all know there are parts of the financial system where banks aren't competing as fiercely as we'd like. Well, here is another one of those that I admit is a bit obscure, but important. Imagine you make a tap-and-go payment using a debit card (let's leave credit cards for another day). Much of the time, waving the card next to a terminal, instead of inserting it, selecting Cheque or Savings and entering your PIN, is a no-brainer. It often won't cost you any more, and you've saved a few seconds. But that's only what you see as the customer. In reality, choosing to tap-and-go instead of "dip and PIN" does result in different costs for the retailers, because it means the payment goes through a different set of pipes – the credit card networks owned by Visa or MasterCard.

According to RBA estimates, the merchant will pay an average of about 0.55 per cent of the transaction's value in a "merchant service fee" to their bank when the payment goes through the credit card network. But if it goes through the eftpos (CHQ or SAV) system, this drops to 0.15 per cent. That may not sound like a big difference – it's an extra 40¢ on a $100 transaction. But across the $270 billion in debit card payments a year in the economy, it adds up to hundreds of millions of dollars in extra fees going to banks and the international card giants. In other words, all that tapping of debit cards is probably costing merchants hundreds of millions a year more than if people were doing it the old-fashioned way. That in itself may not be a competition concern because until recently the credit card companies were the only ones providing cards and terminals that could support contactless payments across the economy. Accepting tap-and-go payments is probably good for retailers' businesses because of the time saved, so there is an argument they should pay a bit extra for it.

Except that now, eftpos has put out its own tap-and-go system, which is capable of making contactless payments at a significantly lower cost than the Visa and Mastercard-run schemes. Eftpos has released 20 million cards with contactless chips – Commonwealth Bank recently began sending them to customers – and it has terminals that take contactless payments covering 80 per cent of transactions. Meanwhile, some retailers have been pushing their banks for the option of sending their tap-and-go payments through the eftpos system, instead of via Visa or Mastercard, because as mentioned above, it would save them significant sums. Yet despite pressure from retailers, the banks aren't yet allowing retailers to have their tap-and-go payments sent through the cheaper eftpos network. Why does this matter?

Because it suggests some payments are more expensive than they need to be, and it makes you wonder how hard the banks are really competing. If the major banks were competing fiercely to win the business of these retailers, you might think one of them would have jumped at the chance to provide a less costly way of accepting tap-and-go payments from consumers. This may happen – but it hasn't yet. A recent Reserve Bank submission says banks are "considering" giving retailers the option of sending their contactless payments through the eftpos network. Such a move would "contribute to a more competitive and efficient payment system", the RBA said. But the simple fact is the banks have known about this issue for years and haven't done much about it yet, and that's probably because they make more money from the current situation. Remember, the banks are getting a bigger fee for every contactless payment that goes through the international credit card giants' pipes than they get when you press CHQ or SAV.

This may all sound obscure, but it's caught the eye of Treasurer Scott Morrison. In the discussion about bank fees following last month's blitz on ATM fees, Morrison said he was looking at the fees charged "when you tap your contactless card at the supermarket". It would not be surprising if the chief executives of Westpac and ANZ Bank face questions on this issue when they appear before the government's banking inquiry this week. On face value it looks like another example of competition not being up to scratch. Ross Gittins is on leave.