Media Release Payments System Issues

Credit Card Interchange Standard

In December 2006 the Reserve Bank called for submissions on whether changes to the credit card interchange Standard should be considered prior to the upcoming review of the Bank's payments system reforms. This call was in response to concerns by some parties that aspects of the current Standard had the potential to distort competition between the card schemes.

Submissions were received from nine parties and were considered at the meeting of the Payments System Board on 26 February 2007.

A number of the submissions argued that the current arrangements could result in significant shifts in market shares between schemes, and that revisions to the Standard should be considered prior to the broader review. Specific suggestions included: introducing more frequent compliance; the use of industry-based, rather than scheme-based, weights in determining each scheme's compliance with the Standard; and altering the Standard so that all interchange fees had to be below the benchmark.

Other submissions argued that the structure of the Standard should be considered as part of the broader review, but not before. They cited the increased costs associated with an early change to the Standard, as well as the regulatory uncertainty that this might create. Some submissions also noted the advantages of considering any changes to the Standard in the context of a full review of the reforms.

While the Board agreed that the structure of the Standard should be considered as part of the broader review, it was not convinced that any benefits from making changes to the Standard before that review would outweigh any potential costs. The Bank will, however, continue to monitor developments closely and would be prepared to reconsider its decision if it received clear evidence of significant distortions to the market.

Automated Teller Machines

At its recent meeting, the Payments System Board considered a proposal by the Australian Bankers' Association (ABA) for reform of the ATM system.

Various options for reform have been discussed by the industry since at least 2001. While initially there was support for a system in which ATM operators directly charged cardholders using an ATM, there were significant differences of opinion within the industry as to how such a system might work. With the industry unable to reach consensus on the way forward, the ABA wrote to the Bank in July 2005 asking for some guidance.

After a series of meetings with industry participants, the Bank indicated that it saw merit in the industry developing an access code (perhaps along the lines of the EFTPOS Access Code) as well as arrangements that ensured that negotiations over interchange fees could not be used in a way that adversely affected competition. The Bank also indicated that, in its view, ATM owners should not be prevented from charging cardholders for using an ATM, and that accordingly, there was ‘a strong case for the removal of any technical or business restrictions that limited the ability of ATM owners to impose a direct charge’.

In response, the ABA again wrote to the Bank in December 2006 setting out a concrete proposal for reform. The proposal includes: the preparation of an access code by industry along the lines of the EFTPOS Access Code; the retention of bilaterally negotiated interchange fees, but with industry participants providing details of these fees to the Reserve Bank, who may in turn provide these details to ‘genuine’ access seekers under a confidentiality agreement; and no change to the existing system of bilateral agreements, with participants who wished to pursue direct charging having to negotiate this issue with their interchange partners.

While the proposal could help to form the basis of a non-regulatory solution, the Payments System Board would like to hear the views of all stakeholders in the ATM system before responding to the proposal. As a result, in the near future, the Bank will be holding a meeting of all interested parties to discuss reform of the ATM system.

Approval under the Payment Systems and Netting Act 1998

The ASX Settlement and Transfer Corporation (ASTC) has applied to the Reserve Bank for the multilateral netting arrangement operated by it to be approved under Section 12 of the Payment Systems and Netting Act 1998 (the Act). ASTC is the settlement system for the Australian equities market and for related markets including some derivatives. After considering the criteria set out in the Act, the Board approved the application at its recent meeting.

The approval is subject to a number of rule changes being made by ASTC. These changes need to be lodged with ASIC, and are then subject to a 28 day disallowance period. Once this process is complete, the Bank will issue a formal approval. This approval will protect the netting undertaken by ASTC from legal challenge in the event that a party to the arrangement entered external administration.