Media Release Payments System Reform

At its meeting on 20 May, the Payments System Board considered the public interest cases for regulating the BPAY payment system and for publication of the market shares of the various credit and charge card schemes. The Board also considered recent progress by the Australian Payments Clearing Association (APCA) and some of its members in developing new access arrangements for the EFTPOS system, and approved a change to the Financial Stability Standard for Securities Settlement Facilities.

BPAY

BPAY is a payment system that provides a way for consumers to pay bills and to make some types of financial transactions. The BPAY system is owned and operated by a consortium of financial institutions including Australia's major banks. Like the credit card system, the BPAY system involves the payment of interchange fees by the biller's financial institution to the customer's financial institution. These fees are collectively set by the members of BPAY.

In examining the case for regulating BPAY's interchange fees the Bank considered the likely effects of a reduction in these fees on the pricing and use of various payment methods. It concluded that a decline in interchange fees through regulation would be likely to lead to a reduction in the price charged to billers for accepting payments through BPAY, but that it would also be likely to lead to an increase in the price charged to consumers for using the BPAY system. In the Bank's view one effect of such a change in pricing would be a shift away from BPAY towards other methods of bill payment, including credit card payments directly to billers, cheques and over-the-counter cash payments. Given the current relative prices and resource costs of the alternative payment methods, the Bank's view is that such a shift could not be said to be in the public interest. As a consequence it has concluded that there is currently not a strong case to regulate the interchange fees in the BPAY system. In reaching this conclusion it noted that BPAY's interchange fees had fallen through time and were projected to fall further as costs declined.

As part of its examination of BPAY's interchange fees, the Bank sought BPAY's agreement for these fees to be disclosed publicly. To date, BPAY has not agreed to publication of these fees.

In the Bank's view, transparency of interchange fees is in the public interest. Reflecting this, the credit card schemes have been required to publish their interchange fee rates on their websites. The publication of these fees has helped promote competition and contributed to more informed analysis of the efficiency of the payments system. The same benefits would be likely to arise from publication of the interchange fees in the BPAY system.

Given this assessment, the Bank has written to BPAY asking for it to reconsider its decision. The Bank has indicated that, in the event that BPAY is unwilling to publish its interchange fees, it will call for submissions on whether it would be in the public interest to designate the BPAY system with a view to considering the possibility of setting a standard that would require BPAY to publish these fees.

The Bank has previously announced that it will conduct a review of interchange arrangements in the credit card and debit card systems in 2007. As part of that review it will also consider again interchange fees in the BPAY system.

Market Share Data

Earlier this year the Bank wrote to American Express, Bankcard, Diners Club, MasterCard and Visa seeking their agreement to the publication of market share data. American Express and Visa both subsequently agreed to this request on the condition that the market shares of all five schemes be published. In contrast, Bankcard, Diners Club and MasterCard have not agreed to the publication of their market shares.

As is the case with the interchange fees in the BPAY system, the Bank is of the view that it is in the public interest for these data to be publicly available. Not only would publication of the market share data be likely to foster competition, it would also promote more informed analysis regarding competition and efficiency in the payments system.

Given this assessment, the Bank has again written to Bankcard, Diners Club and MasterCard seeking their agreement to publication of their market shares. In the cases of Bankcard and MasterCard – both of which are designated payment systems – the Bank has indicated that if the schemes are unable to agree to its request then it will consider whether it is in the public interest to set a ‘transparency’ standard that would require these schemes to publish the number and value of their transactions. In the case of Diners Club, the Bank has indicated that it will consider whether it is in the public interest to designate the Diners Club payment system, with a view to setting a similar ‘transparency’ standard.

EFTPOS Access Reform

Members of APCA have been working on a revised access arrangement for the EFTPOS system for some time. While the Bank has welcomed this work, earlier this year it wrote to APCA expressing some concerns regarding the then draft Access Code. Since that time, some further progress has been made, although the current proposals still fall short of what would be acceptable to the Bank.

Given the importance of access arrangements in promoting competition and efficiency, and the time already taken in developing a new access regime, the Bank would like to see new arrangements put in place as soon as practicable. Reflecting this, the Bank has written to APCA indicating that if acceptable arrangements cannot be agreed with the Bank by 30 June 2005, then it would consider whether it was in the public interest to impose an access regime.

Financial Stability Standard for Securities Settlement Facilities

In May 2003 the Bank issued a Financial Stability Standard for Securities Settlement Facilities. The intention was that this standard would apply to securities settlement facilities that could potentially pose a risk to the stability of the financial system. To ensure that the Standard only applies to such facilities the Bank has decided, after consultation with the industry, to alter the Standard to limit its application to the licensees of facilities that settle obligations in excess of $100 million in a financial year. Both Austraclear and the ASX Settlement and Transfer Corporation will continue to be subject to the Standard which can be found at www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/standards/financial-stability-standards.html.