Media Release Payments System Reform

At its meeting on 15 July 2005 , the Payments System Board decided to release for public comment a draft revised standard for the setting of interchange fees in the Bankcard, MasterCard and Visa credit card systems and a draft access regime for the Visa Debit system. The Board also considered industry responses to proposals the Bank had made concerning: access to the EFTPOS system; the publication of interchange fees in the BPAY system; the publication of market share data in the credit and charge card systems; and the removal of restrictions imposed by American Express that prevented merchants steering customers to other means of payment.

Draft Revised Standard for the Setting of Interchange Fees

In February 2005, the Bank sought views from interested parties on whether it would be in the public interest to establish a common benchmark for interchange fees in the Bankcard, MasterCard and Visa credit card schemes. After considering the views put to it, and conducting its own analysis, the Board has reached the preliminary view that a common benchmark, rather than scheme-specific benchmarks, would promote efficiency and competition in the payments system and thus is in the public interest.

Under current arrangements, there is a two basis point difference in the interchange fees for the two largest credit card schemes. During the consultation process a number of parties noted that this difference, while small, may be encouraging credit card issuers to issue cards under the scheme with the higher interchange fee simply to receive more interchange revenue for each dollar spent by cardholders. Establishing a common benchmark would promote competition based on factors other than interchange fees and improve the incentives that schemes have to reduce costs.

Accordingly, the Bank has today gazetted a draft revised standard and released a Consultation Document setting out the standard as well as its reasoning. The Bank is seeking submissions on the draft standard by 23 August 2005.

The standard proposes that the common benchmark be based on a weighted average of the eligible costs of issuers in the Bankcard, MasterCard and Visa schemes. The Bank is not, at this stage, proposing any change to the definition of eligible costs. The new common benchmark would become effective on 1 November 2006, the date on which new benchmarks under the existing standard would otherwise become effective.

Draft Access Regime for Visa Debit

Visa has advised the Bank that its international rules may prevent a Specialist Credit Card Institution (SCCI) from joining the Visa scheme. This is despite the access regime for the Visa credit card system, imposed by the Bank, prohibiting discrimination against SCCIs. Given that this regime strictly only applies to the credit card system, Visa has indicated that an SCCI intending to acquire both Visa credit and debit card transactions might not be able to join the scheme. This would render ineffective a part of the Bank's access regime for the Visa credit card system, as well as preventing an SCCI from acquiring transactions on Visa Debit cards.

The Board considered a number of options and reached the preliminary view that the public interest would be promoted by imposing an access regime on the Visa Debit system that is essentially the same as that previously imposed on the Visa credit card system.

Accordingly, the Bank has today gazetted a draft access regime and released a Consultation Document setting out the regime as well as its reasoning. The Bank is seeking submissions on the access regime by 10 August 2005.

EFTPOS Access Reform

Members of the Australian Payments Clearing Association (APCA) have been working on revised access arrangements to the EFTPOS system for some time. In June, the Bank wrote to APCA indicating that if these arrangements could not be finalised in a timely fashion, and in an acceptable form, then the Bank would consider whether it was in the public interest to impose an access regime on the EFTPOS system. The Bank indicated to APCA that it expected that: a reasonable cap be placed on the price of establishing a connection to existing participants; a clear timetable for the testing of connections be set; and that a proposed requirement that entrants must meet a minimum volume before the new arrangements would be applicable be removed from the draft access code. The Bank also sought APCA's commitment to bring the revised arrangements into effect by 1 January 2006.

APCA has now indicated to the Bank that its members that would be bound by the proposed access code have agreed, in principle, to the changes suggested. The Bank is now discussing with APCA the details of how the new arrangements might be put in place.

Publication of BPAY Interchange Fees

In June 2005, the Bank wrote to BPAY seeking its agreement to the publication of its interchange fees. The Bank indicated that, in the event that BPAY was unwilling to publish its fees, it would 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 its interchange fees.

BPAY has now agreed to publish its interchange fees and they will be available on its website from 1 September.

Market Shares of Credit and Charge Card Schemes

In June 2005, the Bank wrote to Bankcard, Diners Club and MasterCard seeking their agreement to the publication of their market shares, indicating that if they were unable to agree then it would consider whether it would be in the public interest to take action under the Payment Systems (Regulation) Act 1998. Visa and American Express had earlier indicated that they would agree to publication of their market shares, provided that the shares for all schemes were published.

In response, Bankcard, Diners Club and MasterCard have indicated that they remain opposed to their market shares being published by the Bank. Diners Club and American Express (the three-party schemes) have, however, both indicated their agreement to the combined market share of the three-party schemes being published. To date, the Bank has not been able to publish this information as the secrecy provisions of the Reserve Bank Act 1959 ordinarily prohibit the publication of information that could lead to the identification of data supplied to the Bank by a single entity.

After considering the various options, the Board has decided, given the written agreement by American Express and Diners Club, to publish the combined market share of the three-party schemes. The Bank will also publish the combined market share of the Bankcard, MasterCard and Visa schemes (the four-party schemes). The data will be published quarterly in the Reserve Bank Bulletin starting in August 2005, together with data on average merchant service fees.

These data will provide a factual basis for public analysis of the competitive position of the designated four-party schemes relative to the three-party schemes. Following discussion with the various card schemes, and its own analysis, the Bank is of the view that any incremental benefit to be gained from publishing the individual schemes' market shares is unlikely to outweigh the costs associated with regulation requiring these data to be published. Individual schemes, of course, may publish their own market shares.

American Express Merchant Agreements

In February 2005, the Bank announced that American Express had agreed to reword clauses in its contracts with merchants that prohibited them from encouraging cardholders from using another card. American Express has now distributed revised agreements to merchants that fulfil this undertaking. As a result, merchants now have the option of asking a customer who offers a charge card whether they would be prepared to pay with another card or another method of payment with a lower cost to the merchant. For many merchants this may be preferable to charging for accepting a card or not taking particular cards at all.

Submissions

Submissions on the draft revised credit card interchange standard and the draft access regime for Visa Debit should be made to:

Head of Payments Policy
Reserve Bank of Australia
GPO Box 3947
SYDNEY NSW 2001

or to

pysubmissions@rba.gov.au

All submissions will be published on the Bank's website, and those making a submission will be offered the opportunity to discuss their submission with the Bank.