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Australia’s largest supermarket chain is set to offer an instant payments service that will allow customers to pay for items directly from their bank accounts.
In a challenge to US card schemes, Woolworths hopes to become the first major retailer in Australia to initiate transactions using the New Payments Platform (NPP), the country’s instant payments system.
In a statement provided to VIXIO, Woolworths said the new pay by bank feature will be rolled out through a partnership between Wpay, its payments subsidiary, and Zepto, a payments processor.
Zepto, which specialises in account-to-account payments, has been selected by Wpay to power its use of PayTo, a payment initiation solution connected to the NPP.
Developed by NPP Australia, PayTo is a digital solution for merchants and businesses to initiate instant payments directly from their customers’ bank accounts.
Using PayTo, Wpay will be able to verify customers’ bank accounts in real time, and will benefit from real-time payment validation, processing, settlement and reconciliation.
According to Wpay, PayTo will also provide customers with greater control over their payments and will offer enhanced protections against fraud.
Paul Monnington, managing director at Wpay, said that Zepto was the “obvious choice” as its PayTo partner, thanks to its direct connection to the NPP payment rails.
Connecting to the NPP
In October 2021, Zepto became the first non-bank fintech approved to access the NPP as a "connected institution".
This step was taken ahead of the launch of PayTo, which was initially scheduled to go live in mid-2022, but was pushed back due to delays among several of the major banks in Australia.
Thanks to Zepto’s designation as a connected institution, users of the Wpay platform will enjoy real-time payment validation, processing and making immediate availability of funds.
Chris Jewell, co-founder and CEO of Zepto, said the tie-up with Wpay will be a “game-changing” milestone in bringing PayTo use cases to the retail sector.
“PayTo is revolutionising the way businesses approach payments, whilst also mitigating the risks of missed payments and fraud,” he said.
“It’s an incredible milestone in Wpay’s journey and we couldn’t be more excited to be supporting this.”
Katrina Stuart, general manager for business payments at Australian Payments Plus, the parent company of NPP Australia, said the partnership will likely set an example for other retailers to follow.
“It’s great to see PayTo being leveraged for a retail use case, and we believe this innovation will be a real catalyst to drive uptake across the wider retail industry,” she said.
“PayTo can not only deliver benefits to the end-consumers using it at the checkout, but also to the merchants from a back-office perspective.”
Saving costs with instant payments
The obvious benefit for merchants is that use of the NPP is virtually free, whereas accepting card payments in Australia will cost retailers between 0.5 percent and 1.5 percent per transaction, depending on the size of the retailer.
The smallest merchants (with revenues of up to $100,000) will be at the highest end of the scale, while the largest merchants (with revenues of $10m or more) will be at the lowest end.
However, in the case of Woolworths, the supermarket giant already saves money on merchant fees by way of Wpay, which is currently the largest non-bank acquirer in Australia.
According to Wpay’s Monnington, Wpay currently processes more than 1.2bn transactions a year.
Adoption of PayTo and instant payments among merchants is likely to put downward pressure on interchange fees across the board in Australia.
Michael Swannell, managing director of payments firm KeyOne Consulting, told VIXIO that reducing interchange fees is still the top priority among Australia’s payments regulators.
Since 2020, as covered by VIXIO, the Reserve Bank of Australia (RBA) has published several studies exploring why smaller merchants tend to have higher payment costs.
Among the reasons offered was that larger merchants are “more likely” to benefit from “favourable” interchange rates from card schemes.
Aside from lower transaction volumes, the RBA said this is likely due to “impediments to competition” in the acquiring market that have a greater impact on smaller merchants.
For example, smaller merchants are likely to have less negotiating power with their acquirers, said the RBA.
They may also face relatively high costs when switching to another acquirer, and they may be less likely to choose or be offered plans that would minimise their payment costs.
Using Payto, however, even smaller merchants could save on costs compared with accepting card payments.
