Debunking Some EFTPOS And Debit Card Myths

The news that Woolworths is no longer accepting payments via debit Visa and MasterCard stirred up a lot of debate amongst Lifehacker readers. While it's clear that many plan to change supermarkets as a result, it's also clear that some people don't understand how those transactions are costed or what their options when it comes to free EFTPOS transactions are.

Picture by superciliousness

I must admit I was surprised by the intensity and volume of the comments when I posted about this topic yesterday. From the reactions to this issue, it's clear that Woolworths could have done a much better job of explaining the change (and in training its staff on how to communicate with customers about it).

While Woolworths says on its own site that debit card transactions will likely account for less than 1% of its total sales volume, evidently many people who have elected to use a debit card have done so in order to minimise their own bank fees and other expenses. While that may be a sensible choice, some of the comments on that post suggest that it isn't always an informed choice.

The most persistent theme in the comments (both on Lifehacker and elsewhere online) was that using a debit card was the preferred choice because it didn't count against monthly limits on the number of EFTPOS transactions that could be made without charge. There's an apparently widespread belief that all bank accounts work this way: "99.9 % of banks charge fees for the use of EFTPOS", Ben wrote.

As other commenters pointed out, there are in fact many banks which offer unlimited EFTPOS transactions as part of their accounts. It's true that in many cases those accounts are subject to a monthly maintenance fee (typically anywhere from $5 to $10), but there are ways of avoiding that. A number of banks waive those fees if you maintain a minimum balance or make regular deposits (such as your salary) at a certain level, for example.

A quick search on Lifehacker favourite Mozo (which includes an option to identify accounts with free EFTPOS transactions) turned up dozens of accounts which offered unlimited EFTPOS transactions, including some with no monthly fees. My conclusion? If the only reason you've been using a debit card to pay your grocery bills is to avoid EFTPOS charges, switching banks to get more free EFTPOS transactions might be just as useful a strategy as switching supermarkets (especially if you end up travelling further in order to do that).

A second argument is that the debit card payment offers additional security, because you're covered by the protection schemes offered by credit card issuers. That wouldn't necessarily be relevant for your weekly groceries, but would certainly apply to (for example) electronics purchased at Big W. Again, though, you need to check the details of your debit card to see if it offers any consumer protection features such as added insurance or extended warranties — many don't. Don't confuse fraud protection, which detects attempts by others to use your card for fraudulent purchases, with insurance on stuff you have legitimately purchased.

It's instructive to look at the actual costs which Woolworths (and other retailers) incur with different types of payments. Visa's own guide to interchange fees says that supermarkets pay 6.6 cents for each debit card transaction, but pay only 0.352% of the transaction value for credit card transactions. According to the Reserve Bank, standard interchange rates for EFTPOS are between 4 and 5 cents per transaction. In practice, that means credit card expenses are lower than debit cards or EFTPOS for transactions under $20, but higher if the purchase costs more. (The overall picture is more complicated, however, since Woolworths itself is a member of the national EFTPOS steering company and won't always pay interchange rates.)

While 6.6 cents seems like a minor fee, that still adds up to handy potential savings for a company the size of Woolworths. One percent of its 2009 supermarket sales amounts to $361 million. If you assume an average basket size of $80, that means roughly 4.5 million debit card transactions. The saving for Woolworths from those transactions would come close to a quarter of a million dollars in a year. Whether that's been worth the public relations debacle is another matter.

Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.


Comments

    I use EFTPOS or cash for virtually all of my day to day business. I made sure my everyday banking account has unlimited EFTPOS transactions as part of its features. It's far too convenient. And I get cranky with people using credit or debit cards at the grocery shopping queue. I hate having to wait while someone has to sign a touch sensitive panel.

    Lifehacker now a fully-fledged Woolworths apologist? It's a throwaway line to say "just switch banks" to avoid fees etc; the reality is it's still seen as a big hassle to do so.

    Ultimately many will simply see this as Woollies making things easier for themselves at the expense of customer convenience. Their PR spin that this will translate into lower prices should be filed under "wing and a prayer". How would we ever know? Juts trust them, I suppose?

      Yes, changing a bank account is a hassle -- but so is changing a supermarket, which loads of people are apparently more than willing to do. And I'm still slightly amazed at how many people do seem to think that their choice of a bank account with limited EFTPOS transactions is somehow Woolworths' fault.

        "Switching" supermarkets is a misnomer. Many, many households frequent more than one brand, more so these days with a trend to more frequent visits of smaller transactions ("top-up" shops). Aldi is probably adding to that trend. So I'd argue that adjusting your supermarket mix is way easier than the hassle of searching out the best EFTPOS product and establishing new banking arrangements.

        Unless you live in a small tow, there are normally many options to do your shopping. Most of the woolies traffic is probably through larger shopping complexes, and in these, there is a lot of choice..

        I saw the explanatory material at the supermarket (and website) and was concerned it was misleading; it implies but doesn't clearly state that the credit debit cards can now only be used for EFT, and for some people that will mean fees that they aren't expecting. I am concerned that the people caught out will be the more vulnerable ones.

        It's not that we think it's Woolworth's fault. It's that we don't think we should have to CHANGE BANKS(!) to shop at Woolworths fee-free.

        They're not listening to consumers. Or asking them.

          They're definitely stirring up a lot of negative sentiment. That said, you could still shop at Woolworths fee-free by using cash, couldn't you?

    I have a debit MasterCard, but I always use savings because credit takes a while to process, and using credit leaves me with two different balances for a while.

    I use a visa debit card as it suits mine and my partners life style and does every thing we need. We are regular shoppers at Woolworth's but will be no more. They are making a saving but this will not be past onto us the consumer so there profits once again go up while most peoples lives get made that little more harder. This is very easy for us it means we travel less distance to coles where we can use it.

      Then why were you going to Woolies in the first place?

    Well apparently I'm one of the very unusual ones who has a bank account with a restricted number of "free" transactions per month. My credit union has always operated this way. It's a simple formula, and instead of defending Woolworths, LifeHacker should be exposing them.

    I've known all along that if I use eftpos, the cost of the transaction gets charged to my account. If I use debit credit card, on the other hand, the cost of the transaction gets charged to the merchant, via the VISA or MasterCard merchant fees. So it's a pretty simple matter for me. I want the merchant to pay.

    The only reason Woolworths would do something like this is to pass the cost back to the consumer. But, apparently only those who don't actually have credit accounts. So it's a self-interested, and frankly rather nasty move on their behalf. It deserves to be treated with the contempt it has been shown.

    Will they be reducing their prices? I notice no change despite the massively reduced staffing levels now that they expect me to be my own checkout chick.

    Bah.

      If it were only as simple as "making the merchant pay".

      Well said Jason. Apparently I'm the other Australian with limited EFTPOS transactions on my cards. I only ever put transactions through as credit (unless I want cash out - to avoid competitor ATM fees).

      The last time I changed banks it took about 3 lunchtimes for the paperwork and a few weeks for cards to be sent out, PINs changed, letting employer know my new details, setting up/cancelling direct debits etc, etc. I'd prefer to send my money to Safeway.

      And I use a PIN, so no signing of touchscreens!

    Are you joking? Woolworths can afford to make these concessions for the customer. Considering the do normal mark-ups of 100 to 150% on items. While some items like meat are marked up 400 to 500%. Woolworths is raking in cash from these transactions. 6.6 cents per transaction is not only reasonable it's more than justified to make things a little easier on your customer, who in case you have forgotten is the only reason you are in business. Aussie businesses have a habit of treating customers anyway they want. They abuse the fact that there is a great lack of real competition in the country to rip off customers on a daily basis. So on top of ripping everyone off they also don't want to do anything that may make the shopping experience a little easier on the customer. I am from America and recently been spending months in Aussie at a time. I have never seen companies take advantage of the customers so badly and have so much disregard for how they are treated.
    Even though I know the choices are limited I hope a great deal of people take their business somewhere else. It's the only way Aussies will ever make these companies start waking up and treating them like the lifeblood of the business that they are.

    A great article Angus. The only things I would add are that:

    - for EFTPOS, the fee goes from the cardholder's bank to the merchant's bank;
    - for Visa/MasterCard/etc, the fee goes from the merchant's bank to the cardholder's bank.

    So it's not just about the *size* of the fee, but the *direction* in which the fee goes. EFTPOS doesn't cost Woolies a cent (in fact, they probably make a few cents from each transaction because their bank would be sharing the EFTPOS fee income with them).

    This is why banks are sending people Visa Debit and Debit MasterCards to replace their EFTPOS cards (often without even asking first). They make money from every transaction.

    The second thing is that the fraud protection is a bit of red herring. Visa Debit and Debit MasterCard are inherently much more insecure than EFTPOS. Transactions with EFTPOS can only be authorised via PIN. If you lose your EFTPOS card, you won't lose money unless you've written your PIN on your card. If you lose your Visa Debit card, or if someone finds out what the card number and expiry date are, fraud can easily occur. And getting your money back can take time.

    Frankly, I'm glad Woolies has done this. Visa and MasterCard are trying to kill EFTPOS, and while people might not care about that at the moment, when EFTPOS is gone, Visa and MAsterCard will ramp up their fees, which will cost everyone more (even if it is hidden in the prices we pay for things).

    I say I'll switch to Coles, since it's only a minute away, but I know deep down that I won't. I'll just cop the excess charges as I will not leave Police Credit as they have amazingly good loans at times.

    As Troy said, the fact the savings likely won't be passed onto consumers (or even the front-end staff) is enough to make me upset with the change.

    6.6c for a debit card transaction vs 0.325% for a credit card..
    So for purchases over $18, a credit card costs Woolies more..

    I'd hazard a guess that 90%+ transactions at Woolies/Coles/BWS/Dan Murphy/DSE/Tandy/Woolies Servos are $18 or more. If this were merely a legitimate money saving issue, Woolies would be banning Credit Card purchases too!

    Moving banks is an absolute nightmare, not to say a time consuming process. It's not an option unless you really have to go out of your way to shop. Seriously who doesn't pass at least 2 supermarkets on their drive to/from work?

      Woolies had done this on Visa Debit and Debit MasterCard because people can still access exactly the same account simply by selecting cheque or savings.

      Although credit cards cost Woolies more than debit cards, if you block a credit card you effectively block access to the credit card account.

      Woolies has effectively blocked a *method* of accessing your account, not blocking complete access to the account.

    "This is very easy for us it means we travel less distance to coles where we can use it."

    why didn't you always shop at Coles then?
    maybe I'm lazy, i work for Woolworths and even with a 5% staff discount (which doesn't sound like much but does add up) I mostly shop at Coles because it's a 4 minute walk from my house instead of 20 minutes.

    Frankly the changes are good for me as I can use credit and pin which with my bank is free anyway. EFTPOS costs me 50c a transaction and I would always forget and use it and get slugged.

    Disregarding the fact that I work for one of the big two I think Woolies is generally cheaper while Coles has more obscure products, though in the end they are pretty much the same. Franklins on the other hand is both expensive and shoddy.

    It's about the impact of the annoucement, the logic is up for question as you point out. The Rage Page has 4X more fans than the official Wollies Page:

    Facebook Page http://www.facebook.com/pages/BOYCOTT-WOOLWORTHS-GROUP-VISAMASTERCARD-Debit-Card-Debacle/116867128332856

    Walter @g2m
    http://xeesm.com/walter

      Ah yes - the new way to lazily attempt to impress your opinion on...someone...the Facebook pages. If your only action is to join some anti-Woolies Facebook page then you really don't care about the issue that much.

        If woolworths sees enough people join this group they may change their minds... a facebook group brought back hey hey its saturday and look how that turned out

          Hmm. The reunion specials did well, but the returned series this year has seen a steady decline in ratings . . .

          I personally suspect Woolworths will only change the policy if it sees a measurable decline in revenue. How quickly (or efficiently) it can make that assessment is open to speculation.

    Woolworths' net profit for the first half of FY2010 was $1.1 billion(1). Now tell me again that $250,000, or 0.025% of their first half profit, is a "handy saving" for all of 2009, compared to the effect that this will have on customers' good will and finances.

    (1) http://www.news.com.au/business/woolworths-profit-up-11pc-boosted-by-strong-sales/story-e6frfm1i-1225834630358

    How very backward Australia is in its EFT systems.
    New Zealand is a leading light in this arena.
    The fact that your banks here rake in BILLIONS is due to consumer apathy, stupidity and ignorance.

    For most people I speak to the problem isn't so much using EFTPOS and the fees associated with it, more that they actually can't remember the PIN number on their cards...

    I'll add my name to one of the people who loves their VISA Debit card. I've had one for about 5 years now, long before the vast majority of people have had one.

    My account is another one that does NOT have unlimited EFTPOS transactions. I use the Credit button on EFTPOS machines all the time. I personally prefer Coles for my shopping, and after this, I won't be shopping at Woolworths any time soon.

    I didn't see this mentioned yet so I'll add this information...

    A year or so ago Mastercard (not Visa AFAIK) decided to make their debit cards more consumer-friendly by allowing consumers to split bills if their debit card balance is lower than the purchase price.

    Well, that's the positive spin.

    The other side of the story is that *all* shops that accept Mastercard debit cards *must* allow customers to split their bill and pay with multiple methods if the debit card balance is too low. This is written into the merchant agreement.

    It's understandable that a shop may wish to simply not allow payments by debit cards in the face of this.

      Reference for the that is here:

      http://www.mastercard.com/us/merchant/solutions/new_req_for_prepaid.html

      Note how Mastercard tries to portray this ridiculous new burden as being somehow good for the merchant.

    Try to pay a Telstra Bill at Australia Post with a Visa Debit Card and see how you go.

    The savings to Woolies is not the 6.6 cents, but the difference between 6.6 and "4 to 5" cents.

    Woolies are prepared to inconvenience 1% of their customers to save up to 2.6 cents on a transaction.

    I make that $117k.

      I thought that too initially -- it isn't clear though whether Woolworths is paying the EFTPOS interchange fee in all instances though. (Unsurprisingly, it doesn't publicise its costs in this area in any detail.)

        Woolies will be paying the interchange rate either directly or indirectly.

        Have you ever known an accountant to ignore a potential write-off? :)

    I don't generally chose which supermarket to go to (which one is more convenient to access from my current location via my current method of transport?) but my response to credit not being an option on my Visa Debit card at Woolies & Big W the other day was to get out my credit card. A minor inconvenience for me (don't like to use credit regularly) and a net benefit of zero for Woolworths.

    And yes, I *could* switch banks but my local credit union where the gentleman on the front page of the website is usually manning the front desk and I pay no fees (except for when I go over my free EFTPOS transactions) is worth far more to me than Safeway.

    Oh, and I checked out Mozo (after having to click through from *another* LH article - seriously?) and I'm not sure where you pull the "dozens" of unlimited EFTPOS transactions from. When I checked the "No EFTPOS fee" box, it showed me 58 options (in Victoria) - most of which had limited EFTPOS transactions. The few which *did* have actual unlimited were from the big banks and had ratings much lower than the my credit union and most of the other limited accounts (generally also credit unions).

    This might be a good opportunity to reassess your banking needs but in most cases it seems like in the fight between your bank/credit union and your supermarket, your bank/credit union should win out.

    [Oh, and top tip: when purchasing expensive electronics/other items at your locally owned, independent, small business electronic shop, and want to be supportive do them a favour and buy on EFTPOS if possible - especially when it comes to fruit-flavoured computers with notoriously small margins, for example, the 2.5% the credit card companies can be the difference between making and losing money on a sale]

    just finishing up a 7 week trip around europe, and i have noticed that many countries including Germany and Switzerland, are no longer accepting credit cards at supermarkets or electrical retail stores etc. Only cash or local version of eftpos is accepted. For travellers it probably doesnt matter, but it was a pain as a visa debit card holder not being able to use either system overseas.

    I switched banks (after 25 years with the same one) _and_ supermarkets, and now make a concerted effort to visit local produce providers. Perhaps I'm too stubborn in my principles, but I'm not going to be yet another one of those lazy people who'll just bend over and take it, despite how annoying and inexplicably short-sighted their behaviour is.

    Woolworths' policy, irrespective of its financial merit, simply shows them as a corporate bully, and demonstrates just how low they put customers' interests on the list of priorities. It might seem to people that customers aren't affected, but indirectly they are.

    I personally think its a lot easier to change supermarkets than banks. My shopping centre has both a coles and a woolworths. And I am very happy with the services provided by my credit union, not so much the service provided by woolworths.

    Also, while woolworths may save money, my credit union will lose money. I would much rather support my credit union than woolworths, or change to a big bank.

    I know that at least my partents will be shopping at Coles from now on then. Our EFTPOS cards have a $1000 daily limit on them, and sometimes our grocery bill is over $1500 (we live in a remote area and have a family of 5). Most times we are unable to pay with EFTPOS because of this reason.

      You could still pay on a standard credit card, I guess . . . but having driven that distance, the choice of supermarket is hardly going to make much difference to the petrol bill, I guess.

    I've been with a Credit Union all my life, and they have only ever offered Visa card access to my account (well before the Visa Debit card existed).

    They had unlimited free transactions for many years and had disclosed their costs in running the system as part of a campaign to keep costs down for the members. Basically it amounted to EFTPOS costs the bank and Credit costs the merchant, so the credit union always pushed for everyone to push credit if they are not getting cash out.

    When I saw the notice at Woolworths I immediately assumed now that visa debit cards are everywhere (and have pin code access) that it was a cost cutting exercise on their part.

    My Visa debit came up with credit as an option anyway so I pushed credit anyway just to spite them! :)

    I just used my Bendigo VISA Debit card at DSE and there was actually a message attached to it saying it wouldn't work. I pressed Credit and it worked fine.

    I even told the cashier and he had no idea about it, pretty stupid if you ask me.

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