Ed Nilson' Manager Banking Systems' SHOPRITE CHECKERS'

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Ed Nilson.Manager Banking
Systems.SHOPRITE CHECKERS.

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Shoprite Checkers

• Submission to the Competitions Control Board in
  respect of the Feasibility Report on charges in
  the Banking Industry.

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NUMBERS..

• 9,000 checkouts.
• R32 BILLION Sales.
• 44 million card transactions per annum.

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Subjects covered in submission

• Changes in Tenders.
• Sorting at source.
• Interchange fees.
• Low cost banking products.
• Ad valorum charges on debit cards.
• Hidden fees.
• EMV Experience.
• Cash handling fees.

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Changes in turnover value split by tenders

• In the period 2002 to 2006
• Cash -11.89
• Cheques - 2.44
• Credit cards 3.21
• Debit Card 11.12

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Sorting at Source

• S.A. Reserve Bank declared sorting at source not
  clearing, therefore not illegal (January 2006).
• Our requirements for sorting at source based on
  risk element.

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Single acquirer scenario
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Multiple acquiring scenario

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Sorting at source

• Using the single acquirer principle, our business
  is at risk.
• Should our single acquirer fail, all transactions
  requiring an authorisation would not be
  processed.
• Should Bankserv fail, we would only be able to
  process our single acquirers card transactions.
• The banks maintain that the cost of going to
  direct to issuers would be more expensive for
  themselves, so the larger merchants would not
  receive reduced fees.
• This is based on traditional processing systems
  and financial structures.
• The payments industry is not what it was 5 years
  ago, so the same rules can no longer be applied.

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Interchange Fees

• Banks decide on the interchange fees for credit
  and debit cards.
• Public not allowed to know details of the make up
  of the fee. The Edgar Dunn report never released
  to the public.
• When interchange was reduced, merchants were not
  given full benefit of the reduction.
• Smaller merchants would not be wise to reductions
  in fees in the industry.

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Low cost banking products.

• Capitec Bank cheaper than Mzanzi.
• In conjunction with Capitec, Shoprite introduced
  a low cost Money Transfer product for R9,99
  regardless of value.
• The volumes done by Shoprite this year probably
  exceed those done by all banks on Mzanzi. Over
  50,000 transactions value R20 million.
• Postbank wanted R17,99 plus an ad valorum.

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Debit card Merchant Fees

• Debit card transaction is PIN based, on line,
  guaranteed, pre funded, minimum fraud element.
• No justification for an ad valorum fee on debit.
• Customer pays, merchant pays.
• Fee is based on old thinking, equated to charging
  an ad valorum on credit. Previously, merchants
  were paid by the banks.
• Fee should be based on transaction processing
  cost.
• e.g. Australia is 6 cents.
• Small merchants are in some cases charged the
  same rates for debit and credit transactions.

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Double or hidden costs

• Banks have bi laterals for the processing of some
  card transactions. Details not made public.
• E.g. Amex, Diners and buy aid cards.
• Some cardholders are charged 2 fees on a single
  transaction where goods and cash are involved.
  But only one slip is signed for. They perceive
  the retailer to be the recipient of the fees.
• For franchised ATM services, cardholders are
  charged an additional fee over and above the
  normal costs.

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Experience

• Shoprite spent millions on becoming EMV (Chip)
  compliant.
• No benefit to the merchant.
• No contribution from the banks. U.K. banks
  assisted merchants.
• No reduction in merchant fees, although the fraud
  element is supposed to reduce dramatically.
• Initiative driven by Master Card and Visa.

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Cash Handling Fees

• The volumes of cash handled by Shoprite are
  massive.
• Cash handling fees when added to all related fees
  e.g. cash in transit costs, insurance, staff
  requirements etc., are excessive.
• Shoprite has requested that Resbank makes
  allowances for large retailers to process cash
  directly to themselves.

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Conclusion

• The fees charged to merchants and customers are
  not attributable to the cost of a transaction,
  and more likely due to the fact, that the present
  system engenders the practice of overcharging by
  the banks, that has little to do with the
  activities and operations of the National
  Payments System.

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• F i n i s