Media Release Payments System Board Update: May 2018 Meeting

At its meeting today, the Payments System Board reviewed industry progress on providing merchants with the ability to route contactless debit card transactions to their lowest-cost processing network. Least-cost routing (LCR), or merchant routing, is an initiative aimed at increasing competitive pressure in the debit card market, and thereby holding down payment costs in the economy. The Board noted that:

• One smaller acquirer is now offering LCR to its entire merchant base. A large merchant with its own terminal fleet has already implemented LCR, with cooperation from one of the major banks.
• The four major banks have all made commitments to the Bank to complete the necessary technical work to make LCR generally available within the next year, with two expected to roll out this functionality on their terminals in the next six months. Other banks and acquirers will also be making LCR available over the next six months.
• Terminal providers are making good progress in developing the necessary functionality, and it is likely that some large and medium-sized merchants with their own terminals will be able to implement LCR independently of their acquirers’ schedules.
• The three debit card schemes have provided the Bank with assurances they will not respond to LCR in ways that would limit the competitive pressure in the debit card market.
• The Black Economy Taskforce Final Report recommended that the Board consider regulating to ensure downward pressure on the cost of debit card payments, particularly where dual-network debit cards allow for LCR.

In view of industry progress, the Board has decided that consultation on a standard requiring the provision of least-cost routing is not required at this time. This is consistent with the Board's approach to regulate only where an appropriate industry solution is not forthcoming. The Board expects acquirers to deliver on the schedules that they have committed to and will reassess the case for regulation if there are signs of material delays. The Board has asked the staff to closely monitor pricing developments in the payment card market and whether smaller merchants are being provided with reasonable access to least-cost routing by the major banks.

The Board also considered a number of other issues, including:

• Some aspects of the regulatory framework for retail payments, especially in relation to the complex regulatory arrangements for purchased payment facilities (PPFs). Reserve Bank staff are working with other agencies to review these arrangements, taking account of the recommendations of recent inquiries regarding the regulation of PPFs.
• The Bank's assessment of Australia's real-time gross settlement system – the Reserve Bank Information and Transfer System (RITS) – against relevant international standards. The Bank will publish this assessment in coming weeks.
• The Bank's preliminary assessment of ASX against recently issued international guidance that seeks to strengthen financial risk management at central counterparties. Once finalised, the results of this assessment will be included in the Bank's 2018 Assessment of the ASX clearing and settlement facilities, which will be finalised ahead of the Board's August meeting and published shortly thereafter.