From banking ezine The Sheet:
The Family Court is the usual scene for the resolution and
termination of unhappy marriages, but in the case of the imminent
separation – the parties say it is not a divorce – of Commonwealth Bank
and Woolworths, the Federal Court dictated the timing, if not the terms.
This week’s decision by Mark Weinberg, a judge of the Federal Court of
Australia, to rule in favour of the Reserve Bank of Australia (and thus
banks) and against merchants in a hard-fought case over the regulation
of wholesale bank fees on Eftpos debit card payments provided the
catalyst for the resolution of a simmering dispute between the bank and
one of its largest customers.
The two year old row between CBA and Woolies may be the most
acrimonious of any supplier and customer relationship around
Australia’s banking industry in recent times. And the merchant
acquiring business of the country’s largest supermarket chain – an
unusually profitable piece of business – is up for grabs.
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The background to the row is the agreement, reached six years ago,
between Woolworths and CBA to enter into twin 10-year contracts.
The first agreement provided for the creation of Woolworths Ezy Banking, a wholly owned subsidiary brand of Commonwealth Bank.
The second and more controversial agreement locked Woolworths into
using CBA as the acquirer for all debit card and credit card payments
at Woolworths owned outlets. The unusual feature of this agreement is
the term, and the lack of an adequate mechanism for review.
CBA and Woolworths yesterday announced changes to both agreements. These changes are:
- Early termination of the merchant acquiring agreement between the
pair. CBA will now provide these services until the end of 2006 (that
is, for another 13 months) instead of until the end of 2009.
- An end to CBA’s exclusive right to market credit cards to Woolworths customers from the end of 2006.
- Continuation of the CBA-supplied debit card product until the end
of 2009. CBA will maintain the exclusive right to supply debit card and
deposits to Woolworths customers.
- Termination of any other restrictions on the marketing of other
retail financial services products, which frees Woolworths to source
product from other suppliers, and also frees CBA to market products
through other retail chains.
When established in 1999, the goal for CBA with the Woolworths Ezy
Banking brand was to establish a low cost supply channel aimed at
unprofitable low income and welfare class customers whom the bank hoped
to shepherd out of bank branches. The Ezy Banking savings account
provided what was, at the time, a generous 50 fee-free withdrawals a
month, provided customers extracted their cash at the supermarket
checkout. Transactions at CBA
branches and withdrawals from CBA-owned automatic teller machines, however,
attracted a fee of 50 cents.
But after the first two or three years both CBA and Woolworths realised the
model wasn’t really working. Growth in customer numbers peaked
out at somewhere north of 500,000 and both parties put little muscle
into marketing. Woolworths removed the dedicated floor space for Ezy
Banking in each supermarket about two years ago.