Josh Frydenberg has told regulators to get banks to loosen their grip on the payment services market and limit the fee pain facing small businesses as shoppers go digital.
The post-COVID world is expected to be dominated by debit cards, mobile apps and eCommerce.
Pressure to increase the use of low-cost debit cards and push shoppers away from credit cards will help, the treasurer said in a letter to the Payments System Board obtained by AAP.
He warns fees and other charges imposed by banks and global credit card merchants will rise without regulatory changes that increase competition in the payments services market.
The treasurer wants the Reserve Bank and the Australian Prudential Regulation Authority to push banks to only offer so-called "dual-network" cards to customers, instead of more costly cards only linked to a credit card firm.
Dual-network debit cards allow transactions to be routed through different networks, including the dominant eftpos network and the networks of MasterCard or Visa.
"Recognising the critical role of dual-network debit cards in facilitating least-cost routing, the government strongly encourages the board to consider mandating their issuance for major and medium-sized financial institutions," the letter said.
Many small businesses with high-volume, low-value goods such as coffee and takeaway food are facing average payment costs that are more than 1.5 per cent of transaction values.
"These costs disproportionately impact small and medium sized businesses who are least able to absorb them. For this reason, the government strongly supports least-cost routing," the treasurer said.
The small business lobby group COSBOA has repeatedly warned that the current system is flawed.
Whether a consumer taps their debit card, waves their smart phone, or enters their card details online, the small business owner should be charged the lowest fee and get on with running their business, COSBOA chief Alexi Boyd said.
Eftpos chief Stephen Benton said the move would mean business merchants could avoid typically higher fees charged by international schemes and potentially save hundreds of millions of dollars each year.
But this type of debit card competition is not currently available on platforms like mobile and eCommerce, he warned.
Contactless payments like tap-and-go mobile payments typically go through the more expensive Visa or Mastercard networks.