01.EFTPOS loses ground
The international card companies MasterCard and Visa are rapidly encroaching on EFTPOS’ territory, the Australian debit card system, with their own debit cards. But while scheme debit card transactions are generally free for consumers, other costs lie beneath the surface.
Merchants (such as shops) pay a fee to their bank for each Debit MasterCard and Visa Debit transaction they process. On the other side of the equation, for the banks issuing those cards to customers, the transaction costs are lower than when their customers make EFTPOS transactions. This may partially explain why more financial institutions are offering scheme debit cards, either as stand-alone cards, or “combo” cards that can connect to both the EFTPOS and scheme systems. Westpac, for example, has been migrating customers from EFTPOS to Debit MasterCard for some time. And more than 100 financial institutions, including banks and credit unions, offer Visa Debit cards.
The fees retailers' banks pay to process MasterCard and Visa debit transactions are regulated by the Reserve Bank of Australia (RBA), and while these “interchange fees” won’t appear as separate items on your bank statement, it doesn’t mean the transactions are free. Retailers will have to find some way to recoup these costs. One option is to surcharge customers; another is for retailers to absorb the interchange costs.
Between March 2008 and May 2009, the value of transactions made with MasterCard and Visa debit cards increased 37%, according to RBA statistics. This compared with a 10% growth in EFTPOS transactions over the same period. While EFTPOS retains the lion’s share of the debit card market, the international schemes are gaining ground – MasterCard and Visa increased their share of debit card purchases from 21% to 25% in just over a year.
According to Visa, part of the reason for the increased uptake of these scheme debit cards, as opposed to bank and other financial institution debit cards, is their ability to be used for internet and overseas transactions. They can also offer "chargeback" protection. However, Russell Zimmerman, Chair of the Australian Merchants Payments Forum, which represents a range of small and large retailers, says the main driver of scheme debit transactions is banks urging their customers to use that system.
EFTPOS is a cost-effective payments system with a relatively low incidence of fraud, but needs urgent updating in order to compete with debit cards that are accepted online and overseas. The risks and costs of increased fraud from those transactions, however, would need to be considered. In the meantime, it seems likely Debit MasterCard and Visa Debit cards will continue to take market share from EFTPOS, driving up retailers’ costs to process transactions and potentially putting upward pressure on the prices we all pay for goods and services.