Compare EFTPOS fees and costs

With the surcharge ban coming, a lot of merchants want to compare EFTPOS fees and costs. So here’s the answer up front, before anything else: the only genuinely like-for-like comparison is blended rate versus blended rate. That’s pretty much it. Anything else, you have to go back to your statement, work out what you actually paid as a percentage of your turnover, and compare that number.

And even then, the rate isn’t the whole cost. Hardware, your point of sale, connectivity, when you get settled and what that does to your working capital — all of that is real money, and none of it shows up in the percentage someone quotes you.

Comparing EFTPOS isn’t as easy as you’d think. It isn’t as easy as it should be. Here’s why, and here’s how you actually do it.

First, the three pricing shapes

You can be on a blended rate, which is an all-in rate — say 1.4 per cent across every card, EFTPOS, Visa and Mastercard, the lot.

Then you’ve got interchange-plus-plus pricing. We call that cost-plus, or IC++.

Then there’s a third one, interchange-plus, where the scheme fees are actually bundled into the bank’s margin rather than passed through separately.

I’ve gone into the shapes themselves in more detail in compare EFTPOS providers in Australia. What I want to do here is show you what happens when you try to put two of them next to each other.

Blended against blended — the easy one

Say you’re doing a million dollars turnover a year. You’re on 1.5 per cent all in, blended, terminal’s free. Very simply, you’re paying fifteen grand a year in fees. Easy.

Someone comes up to that merchant and says, hey mate, I’ll give you 1.3 and a free terminal.

Very easy for them to compare. I’m paying 1.5 all in blended. I’m paying 1.3 blended on the new deal. He’s going to save two grand a year on his million turnover.

That’s fairly obvious. That one, anyone can do.

Blended against interchange-plus-plus — where it falls apart

So let’s say he’s done that and he’s on 1.3 blended. Then someone else rings him and says, yeah, I can give you interchange-plus-plus 50 basis points. IC++ 0.5.

How does he know how to compare?

He’s got IC++ 0.5 in one hand and 1.3 blended in the other. And on the IC++ deal he’s going to have to pay for his terminal too — call it thirty to forty bucks a month.

So how’s he to compare? He doesn’t know. He can’t.

So he asks the sales guy: what does interchange-plus-plus 0.5 actually mean? What’s my total cost going to be?

And I can tell you now, 99 per cent of the bankers I deal with and probably 95 per cent of the resellers and brokers don’t know what’s going on. They don’t know much about that stuff. So they’d find it very hard to give you a straight answer. That’s where we differ, because we’re the experts in this.

But how does he compare? He can’t. And that’s where it gets ugly.

What the bad ones do with that

A lot of salespeople are bad salespeople, and they’ll tell mistruths to the merchant. Yeah mate, it’s going to be 1.1 all in, that’s what I’ve calculated.

And the person goes, okay, great. I’m on 1.3 now, IC++ 50 is going to be 1.1. Let’s go with that.

Then the first bill arrives and it’s actually more like 1.4.

And by then he’s already swapped his terminal. He’s changed providers. The new terminal’s in, it’s all connected to the point of sale. And he doesn’t change back. He sticks around for six months.

That’s exactly what a lot of them are banking on. They fib, or they embellish the outcome, because it’s very hard to tell either way and the merchant doesn’t know. And they try and get six months of really good commissions out of it.

It’s not a good way to do it.

Interchange-plus-plus against blended — this one you can do

Now flip it. Say I’m on IC++ 50 basis points, and someone comes and says, hey mate, I’ll give you 1 per cent all in. One per cent blended.

That’s much easier to compare, because you can grab your statement and look at what your total cost actually was for the month under your IC++.

Say your total cost came to ten and a half grand on a million turnover. Right — well, you know that’s 1.05 per cent you’re paying. That’s your effective rate.

So this person’s come in and offered you 1 per cent. You know you’re going to save. If they’d said 1.1, you know you’re not going to save, or it’s not a good enough deal to bother moving.

One caveat: your card mix can change. IC++ is cost-plus, and that cost portion moves.

It’s more expensive on a low transaction size and on a platinum points card. It’s cheaper on a standard no-frills debit card and a high average transaction.

So your cafe in Double Bay — he’s selling small items to rich people, let’s call it, who are more likely to have premium credit cards — versus your mechanic in Frankston. The cost base for those two businesses is actually vastly different. Ideally they should get separate pricing. But a lot of people don’t know that, and a lot of salespeople don’t know how to explain it. Which, again, is why it’s worth having someone who does.

Interchange-plus-plus against interchange-plus — now we’re in the dark

So what about comparing IC++ against IC+? The only difference now is the scheme fees.

Except you don’t even know what the scheme fees are.

Most banks don’t put them through properly. They’re very hard to calculate. A lot of banks calculate them in different ways — they might get charged by Visa and Mastercard in the same way, but they group those fees and then on-charge them to merchants differently.

So, for instance, Commonwealth charge scheme fees for international at around point four per cent. But I know for a fact that the real scheme fee includes a per-transaction component and a percentage component. Which means the scheme fee on a two dollar transaction is significantly more, as a percentage, than the scheme fee on a thousand dollar transaction.

So when Commonwealth charge that one flat number to all their merchants, they’re not truly on-charging the scheme fee. They’re charging an average of it.

And all the banks are like that.

Even a mob like Adyen — A-D-Y-E-N — who I’d call almost a true cost-plus pass-through, and who will generally pass on all the scheme fees: they round their scheme fees up to two decimal places per transaction. The schemes themselves work to four decimal places on every transaction and aggregate it weekly. So again — it’s not the same.

Here’s what that does in practice. You’re on IC++ 40. Someone else comes and offers you IC++ 40. You sit there and think that’s the same thing, I’ll be charged exactly the same.

It’s not true. Each of those acquirers can pass scheme fees on separately and in a different manner.

That’s one of the big problems with scheme fees.

You can’t have a cost-plus contract and not know the cost

If I hire a builder to do my job and we do a cost-plus contract, and he says yeah mate, the electrical’s worth five to ten grand — I can say to him, give me a look at that invoice, please. He’s cost-plus 20 per cent and he’s charged me eighteen grand. Well, I’ve got the right to see what the costs are.

So why don’t we have that right in the payments space?

I’ve got a client who does a billion transactions a year — I consult to them globally. We were seeing that one of the acquirers had stuffed up their scheme fees, but we had no visibility. The only reason we caught them out is that we knew directly from the scheme exactly what they were charging.

We called the acquirer up and they said, oh no, no, 100 per cent, we’re passing it on properly. And we found out they weren’t. They were rounding decimal places. They were doing this and that.

So hang on. Especially for enterprise clients — if we’re going to get charged cost-plus, we have a right to know what those costs are. But nobody knows what the scheme fees are. The schemes don’t release them. The banks don’t tell you.

This is my personal opinion, but I think there’s a case there for a High Court challenge to force it. How can you have a cost-plus contract and not even know the cost? And then a cost-plus contract where the cost is supposed to be standardised for everybody, and yet everyone charges it differently. It doesn’t make sense.

If I was the RBA, that’s the reform I’d be doing. Force the schemes to release their scheme pricing. And force the banks to properly pass that pricing on if they’re going to call it cost-plus — or make them state plainly that they don’t on-charge scheme fees exactly, and that they calculate it like X instead. So everyone knows.

That’s part of the problem. It is very, very hard to compare pricing across providers. And that’s why you need an expert.

The only real way you can do it yourself is blended against blended. That’s pretty much it.

The rate isn’t the whole cost

Now, a lot of the time your payments are bundled in with your point of sale. So it’s not just the terminal you’re comparing any more — suddenly it’s the point of sale as well.

And then there’s the hardware. What do you actually need?

Pay-at-table

Pay-at-table is where the terminal is integrated into your point of sale and you can move between tables on the terminal itself.

Traditionally I’d go to table four, they’d pay, and then I’d have to walk back to the POS station, press table five, and go and do table five.

With pay-at-table I don’t have to go back to the station at all. I serve table four, they pay, and table five goes, oh mate, can we just pay now too — and I’m straight onto table five on the same terminal.

That’s really handy in a very busy pub, or anywhere the tables are fifty metres from the counter. Think a big beer garden in Melbourne. The staff don’t want to be walking out and back, out and back. If they’re forty metres from the pay station and table five wants to pay as well, you don’t want to have to walk fifty metres each way.

It’s inefficient, and time is money. Pay-at-table can be worth ten basis points in a deal on its own.

Tipping

Then you’ve got tipping. A lot of merchants love tipping — for what it can do for staff pay and retention as much as the extra revenue. Not every machine or point-of-sale setup can offer it, so it’s worth checking before you commit. Here’s how eftpos tipping actually works and what it costs to offer.

Connectivity

What about a SIM card? Do you need one? Do you want Wi-Fi only? Plugged into an ethernet cable? A cable running from your point of sale? Bluetooth?

All these questions matter, because some people have a really bad internet connection — or more often a really bad phone signal. There’s no point giving them a SIM card.

And a lot of the banks charge for it. Someone’s got to pay for those SIM cards.

If it’s a dual-network SIM, like what TNS provide, you’ve got Optus and you’ve got Telstra. Telstra goes down, you’ve got Optus. Optus goes down, you’ve got the Wi-Fi. That’s for the client who says: I cannot go down, mate, I need this terminal functional no matter what.

And if you want to get really technical, you can put a couple of banks in the one terminal too. So you’ve got multi-acquirer, multi-telco, Wi-Fi backup — and you’re pretty much bulletproof.

But that costs money. None of it is free. Someone’s got to pay for it, and it ends up being you, in your merchant fees or your terminal cost.

Whereas if you’re a no-frills business and your Wi-Fi is great — you never take the terminal out of Wi-Fi range, it sits in the cradle all day — no worries. Get the no-frills twenty buck one with no SIM card.

Some providers — Fiserv is the one that comes to mind — will give you twenty different combinations to choose from. Others go: here it is, you’ve got one choice, it comes with a SIM card, it comes with blah blah blah — and you’re paying forty bucks.

Tap-on-mobile

And do you even need all this terminal? What about tap-on-mobile? Can you save money going tap-on-mobile instead?

If you’re 95 per cent of businesses out there — or call it 80 per cent — you need your no-frills standard standalone terminal and that’s the end of it. But other times you need something a bit different. Hardware is a really important part of comparing EFTPOS, it gets complicated, and there’s a lot of it out there.

Settlement — when do you actually get your money?

Here’s one I didn’t mention and I won’t go on about it for long, but it matters: settlement.

When do you settle? Some banks settle at 6:30. Some settle at midnight.

Well, if you’re a restaurant open till ten o’clock, you don’t want to be settling at 6:30. Some banks let you change it — move it from 6:30 to midnight, no worries, no problem. Some don’t let you change it at all.

So what ends up happening is half your shift settles on the Monday and half of it settles on another day. You can work it out — you’ve got your point of sale, you’ve got what they call shift totals — but it’s a pain. And if someone doesn’t want to do that manual work every day to keep their reconciliation tight and easy, then let’s put them with a bank where the settlement time actually suits them.

And then working capital

What about working capital?

Say I’ve got an overdraft facility and I’m paying 14 or 16 per cent for an unsecured overdraft. Every day that I don’t have my money is costing me 16 per cent pro rata.

What’s that work out to? Call it 1.3 per cent a month. That’s about 0.04 per cent a day.

So if there’s ten grand sitting there that I haven’t been paid yet, that’s about four and a half bucks a day. Doesn’t sound like much — but it’s every single day. That’s roughly sixteen hundred a year going out the door on overdraft interest, purely because my money turns up a day late.

Suddenly same-day settlement is pretty valuable to me. I’d be willing to pay five basis points more for a bank that same-day settles — on a million turnover that’s five hundred bucks to save sixteen hundred.

So: can I do that? Do I have to move banks? Some, like Nuvei, will let you settle early but charge you a bit of an extra fee for it. Tyro let you settle on any transaction — you pay a fee.

Now go the other way. Someone like Stripe settles within about four days — and if a weekend lands in the middle, it’s more like five days before you see the money.

Five days of working capital is a different story again. If you’re turning over ten grand a day and you’re permanently five days behind, that’s fifty grand of your own money sitting in someone else’s account at all times. At 16 per cent, that’s eight grand a year it’s costing you to be paid late.

That never shows up in the rate you were quoted. Not one cent of it.

These are the different options all these banks have.

So that’s how you compare

Look at what pricing model you’re on, and work out how that pricing behaves and whether it’s genuinely comparable to what you’re being offered. If it isn’t — and most of the time it isn’t — go to your statement and get your effective rate, because that number is real and it’s comparable to anything.

Then look at your hardware costs. Then your point of sale. Then your settlement times. Then what the money arriving a day late is costing you.

And if you can’t work that out — ask someone who can.

You can sit down and do all of this yourself and spend hours and hours trying to learn the nuances of it. And not many people out there will tell you what’s going on in this space, because not many people actually know it.

That’s why you come to the experts.

Send us your statement and we’ll tell you what you’re really paying.