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.
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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.