Woolworths sets the pace in payments

Jostling for advantage in the - for once - changing world of payment processing must be the prime reason for Woolworth's slap this month at those pervasive brands, MasterCard, and Visa.

Woolworths yesterday announced that it will reroute all debit card payments originating in its supermarkets and other outlets for processing along the Eftpos network used for all other bank-issued debit cards in Australia.

At present these transactions are routed through the processing network of each of MasterCard and Visa.

For Woolworths' customers the shift in approach means they will lose the option of pressing the "credit" button on the payment terminal, which is what building societies and credit unions and more recently banks have coached customers with scheme debit cards to do. The customer will have to make a (redundant) choice between the savings and cheque payment buttons on the terminal.

The change takes effect in two weeks time. It affects around one per cent of Woolworths' customers and roughly five million payments annually, or about three per cent of all debit card transactions in Australia.

Woolworths would only vaguely describe the cost savings from the step as being into the millions. And the shift should not just save money but earn money, given the way interchange fees work in Australia.

Instead of paying four cents or so in interchange fees to the bank or credit union that issued the scheme debit card, Woolworths can expect to earn four cents from the bank that issued the card.

Woolworths will also save processing fees and scheme fees payable to MasterCard and Visa.

The retailer gets to make the call on where to route payments for processing because two years it established its own switch and became an "acquirer" of payments for processing.

This decision is no mere housekeeping by Woolworths but a strategic shift in its approach to payments handling that intersects with other developments in the payments sector.

Over the last year big banks, however reluctantly, and Woolworths and Coles, have begun to steer Eftpos (created by banks through a series of bilateral agreements in the early 1980s) in a new direction.

There are new governance arrangements, a special purpose company governing access and a second, more important company, Eftpos Payments Australia Ltd, that will seek to coordinate new investment in Eftpos as a payments option.

Bruce Mansfield, who used to head Visa International in Australia, will begin work as chief executive of EPAL in May.