Jost Stollmann CEO of Tyro sent me an email today with an interesting perspective on the EFTPOS interchange fee announcement yesterday. I share it here as it is relevant to newsagents who compete daily with Coles and Woolworths. Here is what Jost had to say:
Now it is all in the open. The banks, Woolworths and Coles have agreed on a new EFTPOS fee regime. The two big retailers continue to get paid by the banks an interchange fee of 4 to 5 cents for EFTPOS transactions whereas all the other Australian retailers get slapped with an estimated average 11 cents fee increase per EFTPOS transactions. Instead of receiving also the 4 to 5 cents as up to now, they have to pay 5 cents for a standard EFTPOS transaction. EPAL also charges a new scheme fee of one cent to the issuer and one cent to the acquirer. The volume is big. The Australian EFTPOS system processes 2 billion transactions per year. The facts:
1. According to yesterday’s Australian Financial Review, Woolworths and Coles have confirmed that they are not impacted by the EFTPOS fee increase because they process EFTPOS transactions directly with the issuing banks on the basis of bilateral arrangements. So they will continue to receive a rebate for each EFTPOS transaction based on the 4 to 5 cents interchange rate that the card issuing banks pay to them.
2. The rest of the merchant world has to expect higher EFTPOS fees from 1 October 2011 on. EFTPOS Australia Payments Limited (EPAL) has reversed and increased the EFTPOS interchange fee by 9 to 10 cents. It has added 1 cent scheme fee charged to issuers and 1 cent to acquirers. When banks pass through the cost increases, merchants have to decide whether they absorb the cost increase, raise prices, surcharge EFTPOS transactions or limit ETPOS acceptance.
3. Banks as well as Woolworths and Coles are in the enviable position to receive up to 5 cents per transaction to fund the EFTPOS technology upgrade of their central systems and to support their bottom line.
4. 325,000 merchants with 700,000 terminals, from Harvey Norman to the corner store, will have to worry about and pay to upgrade their EFTPOS technology. Their terminals have to be upgraded and/or swapped out to accept EFTPOS EMV (chip) and contact-less cards. They will have to motivate and pay their software vendors to integrate new EFTPOS functionality into their point of sale software or web sites.
The payment space is complicated, but Tyro works tirelessly to create transparency for the media and advocate fairness for the merchant community. This fee regime is not aimed at making EFTPOS competitive and ensuring its long term survival as claimed.
This is what Woolworths general manager for financial services, Dhun Karai, had to say to the AFR: “The likely threat for other merchants is that to provide revenues to the banks, they will be slugged with higher merchant service fees on eftpos which will diminish the attractiveness of eftpos in comparison to scheme debit cards.” She said Woolworths and Coles directly processed transactions with the issuing banks, which meant they faced no impact from the change.
So, this new EPAL regime is all about raising bank fees with the dire consequence of making EFTPOS less attractive for merchants to invest into and to offer to their customers. Merchants now suffer a significant competitive disadvantage compared to Woolworths and Coles. Cardholders will ultimately pay with higher prices, less competition and availability.
Recent demands that banks absorb the interchange fee is beside the point and naive. It would mean that the big bank issuing side raises fees and big bank acquiring side absorbs the same fees. They could have resolved that with internal accounting. The interchange fee is the problem, because it is not exposed to competition. No retailer or association is able to negotiate the interchange fee with his bank. This bank fee increase has to go! It is unjustifiable and untimely.