eftpos is an important alternative to the Visa/MasterCard debit networks. In this article we give a run down of what eftpos is, how the pricing structure differs from Visa/Mastercard debit, and new innovations in the debit card payments world
What is eftpos?
EFTPOS stands for Electronic Funds Transfer at Point of Sale and designates the payments processing network that allows businesses to process card transactions at the point of sale (e.g. at the store’s front counter).
Nowadays, eftpos (in lowercase) refers to the eftpos card network, which is managed by an organisation called eftpos Australia. eftpos Australia is owned by 19 member organisations that make up the major banks and other payments companies.
How does eftpos differ from debit cards?
Both eftpos and scheme debit (i.e. Visa Debit or Mastercard Debit) transactions require the customer to have sufficient funds in their transaction account to purchase an item. They are not purchases made on credit.
Most debit cards in Australia are dual-network cards. This means that they can be used for both eftpos or Visa/Mastercard Debit transactions.
Back in the days before Tap & Go payments, when a customer made a purchase, the shop attendant would ask the customer whether they wanted to pay using cheque, savings or credit. If a customer chose cheque or savings, then the transaction would route through the eftpos network. If the customer chose credit, then the transaction would route through the Visa or Mastercard network.
Interestingly, no matter which option was chosen, funds were usually drawn from the same underlying transaction account. So EFTPOS and Visa/Mastercard debit do pretty much the same thing.
Why choose eftpos over debit cards?
Lower merchant fees
Minimising fees is important for all merchants. And some of the most annoying fees are transaction fees.
Although they effectively do the same thing, the eftpos and Visa/Mastercard networks charge the merchant very different fees. For most merchants, the eftpos network is significantly cheaper.
According to the Reserve Bank of Australia, the average merchant fee for a Visa/Mastercard Debit transaction was o.5%, whereas the average merchant fee for an eftpos transaction was 0.3%. Over thousands of transactions, that difference can add up significantly.
You may be surprised to hear that cash out is not available through the Visa/Mastercard Debit card networks. Cash out is only available through the eftpos network, by pressing cheque or savings on the terminal.
This is becoming more important for customers, as the Reserve Bank of Australia reports that the number of ATMs, bank branches and Bank@Post outlets are declining quickly.
For those with a patriotic streak, the eftpos network is designed and run by Australian institutions. Whereas, the Visa/Mastercard network is designed and run by global companies.
What is eftpos market share in Australia?
It’s quite difficult to find eftpos market share data, as the Reserve Bank only reports on schemes, such as Visa, Mastercard, American Express and Diner’s Club.
However, according to eftpos, Australians made about 2 billion CHQ and SAV transactions in 2017. This makes up approximately $130bn of the $248bn of total debit card transactions in Australia, giving eftpos a 52.3% market share.
New innovations in eftpos
In the mid-2010s eftpos launched contactless capability on their debit cards.
This resulted in three things:
- Customers could start using eftpos cards to Tap & Go
- The proliferation of dual-network cards (i.e. both eftpos and Visa/Mastercard debit enabled).
- It enabled the launch of least cost routing
Least Cost Routing
When Tap & Go payments were first launched, a customer would tap their card on the eftpos machine and the transaction would automatically be routed through the Visa/Mastercard debit network. But, as outlined above, the Visa/Mastercard debit networks cost a merchant more than the eftpos network.
Now that eftpos has contactless functionality, a number of banks have enabled their eftpos machine customers to automatically route transactions via the cheapest card network. This is known as least cost routing or merchant choice routing,
Rumour has it that eftpos is working on online payments capability for their eftpos cards.
Until then, customers can use their eftpos cards on the iPhone or Apple Watch, so long as they bank with ANZ, Suncorp, St George, or a bunch of smaller institutions.