EFTPOS fees

The ANF has generously provided a letter for newsagents to use to lobby parliamentarians of the EFTPOS issue. Click here for a copy of the letter which you can personalise and send.  I urge newsagent to engage with this. If the forecast changes proceed, we will face higher bank fees per EFTPOS transaction than major Coles and Woolworths. This will further erode consumer perception of newsagents and other smaller and independent retailers who compete with these two retail giants.

The ANF is lobbying from their end.  Tyro, the Broadband EFTPOS company is lobbying from their end.  Please engage in this campaign. The more newsagents who write the better.

Here is further background on this issue:

Eftpos Payments Australia Limited, EPAL, has been given the authority to set a multilateral fee only limited to the cap of 12 cents.

EPAL members are:

• Australia and New Zealand Banking Group Limited
• Australian Settlements Limited
• Bank of Queensland Limited
• Bendigo and Adelaide Bank Limited
• Cashcard Limited
• Citigroup Pty Limited
• Commonwealth Bank of Australia
• Coles Group Limited
• Cuscal Limited
• Indue Limited
• National Australia Bank Limited
• Suncorp Metway Limited
• Westpac Banking Corporation
• Woolworths Limited

On 27 November 2009, the RBA varied the EFTPOS Standard, based on the advice of the PSB. The purpose of the variation is to promote competition and efficiency in the Australia payments system by making the regulation of multilateral interchange fees in the EFTPOS system more consistent with that of the scheme debit system. The varied EFTPOS Standard imposes a cap on the weighted average of multilateral interchange fees set by the newly established EFTPOS scheme (EPAL) of 12 cents paid to the issuer – the same as for scheme debit interchange fees. The variation of the EFTPOS Standard is expected to enhance the ability of the EFTPOS system to compete with the international debt card schemes. The varied EFTPOS standard does not change the way in which bilateral interchange fees are regulated. Bilateral interchange fees on purchase transaction will remain regulated between 4 and 5 cents paid to the acquirer.

Check out this link.

The bilateral interchange fee clause allows Coles and Woolworths to avoid the fee increase. The next step is for the banks to terminate bilateral agreements and move to the multilateral agreement. Then the acquiring side of the banks has to decide on whether it will pass through the interchange fee increase from the issuing side to the merchants. It would be strange to expect that the banks raise the fee to then absorb it  And then the merchants have to decide on whether they pass through the increased costs to consumers via price increase, surcharge EFTPOS, reduce or eliminate EFTPOS acceptance or absorb the cost increase in their margins.

The lobbying by newsagents and other independent retailers has to mobilise media, politicians and associations so as to move the EPAL board members to revise their fee increase decision. It is untimely and unjustifiable to raise EFTPOS fees. The merchants carry most of the burden involved in upgrading the EFTPOS network for EMV (chip) and contactless. They should continue to benefit from the negative interchange fee.

In my view it is grossly unfair that small retailers like newsagents are slugged with the fee to fund EFTPOS, when Woolworths and Coles are not.

Please engage in this campaign.

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.