Visa Inc. officials say they are displeased with a recent decision by Woolworths Ltd., Australia’s largest retailer, to process debit card transactions domestically and bypass the credit card network in a bid to save millions in fees, according to local news reports.

In a statement, Woolworths says it will continue to accept Visa and MasterCard debit cards at its stores across Australia, but as of April 15 users of the cards must press either the “cheque” or “savings” button on the payment terminal so the transactions route via the Australia-owned electronic funds transfer point-of-sale debit network instead of the international card network. Previously, customers could press the “credit” button to route the debit transactions as Visa or MasterCard debit purchases. 

This change will not affect credit card transactions, the statement added.

Visa did not respond to PaymentsSource requests for comment, but Chris Clark, Visa Australia managing director, told the Brisbane Times that 75% of debit purchases in Australia are processed over the domestic network.

Clark also disputed Woolworth’s argument that the acceptance costs of Visa debit cards had contributed to cost pressures on retailers, noting Visa debit interchange fees have dropped dramatically in recent years.

The average merchant cost to accept a Visa or MasterCard debit card is between 8 Australian cents (7.4 U.S. cents or 5.5 euro cents) and 18 Australian cents per transaction, according to the Australian Retailers Association. By comparison, the average merchant cost for an EFTPOS purchase is between 4 Australian cents to 5 Australian cents.

Woolworths claims its decision will allow it to lower product prices for customers, but the extent to which that actually happens is an open question, contends Matthew Sinclair, executive director of Australia-based research firm Carpadium Consulting, tells PaymentsSource that

“It is very difficult for the average consumer to work out how much the cost of processing transactions by a merchant affects point-of-sale prices,” he tells PaymentsSource. “Indeed, it would probably be difficult for anyone other than Woolworth’s to know the true costs.”

Moreover, Visa’s suggestion that the retailer’s decision reduces customer choice also is weak, Sinclair says. “Visa could be on shaky ground when it insinuates that customers want to make a choice about the mechanism that is used to clear a payment,” he says, noting Woolworths’ decision does not affect the consumer’s ability to use internationally branded cards, only their ability to route the transactions over the international brands’ networks.

“As far as I can tell, this won’t affect the consumer’s ability to use their scheme debit card in other situations, such as card-not-present transactions on the Internet,” Sinclair adds.

MasterCard officials could not be reached for comment.

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