Forever In Your Debit

Sydney Morning Herald

Wednesday July 25, 2007

By Michelle Innis

Use a scheme debit card instead of Eftpos and you'll make the banks that much richer.

The latest chorus line for over-spending consumers is that using a debit card will curb excessive behaviour.

After all, a Visa or MasterCard debit card limits spending to what you've got in your bank account.

But that's not the full story. There is also something it in for the banks.

If you use a bank-issued proprietary card to pay for goods at a local store, that transaction will cost your bank about 5 cents a transaction.

A bank-issued proprietary ATM card is the card you get from your bank when you open an every-day transaction account. The card is linked to your bank account which means you get to access your own money. You can use it at an automatic teller machine, or at the supermarket or other retailer. You use it with a personal identification number.

This card is branded with the bank's logo and it can only be used for transactions where the cardholder is present and hands over the card to the merchant or swipes it in the merchant's Eftpos machine.

A bank that issues a credit card gets about 50 cents for every $100 you spend on that credit card. This is down from about 95 cents before the Reserve Bank of Australia instituted reforms to the payments system.

This fee is separate from the money the bank earns from the annual card fee. Interest payments are charged if you fail to pay off your card in full each month plus any penalty payments.

But a bank that issues what is known as a scheme debit card collects a fee each time that card is used.

A scheme debit card is a debit card linked to your bank account that carries both the bank's brand and either a MasterCard or Visa brand.

Despite the fact the card carries the logo from one of the world's two biggest credit card companies, it is not a credit card.

You can only spend the funds that sit in your everyday bank account.

In a speech to the International Consumer Credit Card Summit, held in Sydney last month, Philip Lowe, the Reserve Bank's assistant governor, said the bank that issues the scheme debit card collects 12 cents for every transaction.

Unlike the card the banks issue themselves, a scheme debit card delivers income to the banks.

Two major banks, Westpac and ANZ, along with St George, Bendigo Bank, and Citibank, and some credit unions, have issued scheme debit cards.

"There are functional advantages to a scheme debit card," says MWE Consulting's Mike Ebstein.

"You can use the cards online, over the telephone and overseas, which you can't do with a proprietary debit card."

Greg Storey, Visa's group manager of operations in Australia and New Zealand, says Australians are very comfortable using plastic for everyday transactions.

"Australians are increasingly interested in doing away with coins and cash," Storey says. "The real key is that when you think about how you behave as a consumer you want to be able to use Eftpos and an ATM but you also want to shop on the internet and use the card overseas and over the telephone."

Denis Orrock of researcher InfoChoice says increased functionality is a good thing but many consumers are going to find it hard to keep track of how much they have spent. And if you overspend, the fees can be crippling.

Harry Senlitonga, a card specialist at Cannex, says each card is more like an account feature rather than a product in its own right. "Some of the big banks are offering these cards as part of an everyday account," he says.

The cards themselves don't have annual fees but many banks charge annual account fees.

And, if you overdraw on your bank account, your bank can impose interest charges and penalty fees.

Orrock also warns that using the card to withdraw money while travelling overseas is expensive.

"If you use the ANZ Visa card to withdraw money from an ATM overseas, it's going to cost $5 at the point of the withdrawal, plus 2.5 per cent of the value of the transaction, he says.

"If you withdraw $1000, that's going to cost $30 in fees. That's expensive."

Orrock says the Wizard-issued Clear Advantage MasterCard allows users to deposit funds onto the card but does not charge fees when that money is withdrawn from an ATM overseas.

Visa says despite this, it is now issuing more debit cards than credit cards.

Ebstein says last year debit cards' share of purchases was 31.7 per cent, that of credit cards 56.6 per cent and charge cards held about 11.7 per cent.

Debit cards are being used more often, because the previous year's share was slightly less at 30.7 per cent.

However, the average value of goods bought on debit cards is less than half that of credit cards.

© 2007 Sydney Morning Herald

Back to News Index | Back to Home