Debit and Prepaid Cards Regulatory Framework

Overview

In line with its approach to regulation, since the early 2000s the Bank has introduced a number of reforms which have regulated limited elements of designated debit and credit card systems, with the aim of improving the efficiency of the Australian payments system and promoting competition in the provision of payment services.

In short, the current debit card and prepaid card regulations:

cap debit card and prepaid card interchange fees to a weighted average of 8 cents per transaction, with a ceiling on individual interchange rates of 10 cents or 0.20 per cent if specified in percentage terms
remove restrictions so that merchants can pass on card acceptance costs to cardholders in the form of a surcharge
remove restrictions that require merchants to accept the debit cards of a scheme if they accept that scheme's credit cards and vice versa (through written Undertakings by Mastercard and Visa).

The Bank has also explicitly stated that it expects large and medium-sized card issuers to issue ‘dual-network’ debit cards (DNDCs), which allow domestic debit payments to be processed via either the domestic scheme (eftpos) or one of the international debit networks (Debit Mastercard or Visa Debit). In addition, the Bank expects the payments industry to provide ‘least-cost routing’ (LCR) functionality to merchants. For more detail on DNDCs and LCR, see Least-cost Routing of Debit Card Transactions.

Together the regulations have increased transparency and promoted more efficient price signals, thereby improving payment choices and contributing to a more efficient payments system overall. They have also improved competition by removing restrictions on merchants and supporting their ability to choose the lowest-cost debit network.

Review of Card Payments Regulation

Since the card payment reforms in the early 2000s, the Bank has periodically reviewed its retail payments regulations, with the most recent wide-ranging review taking place over 2019–21. As part of this process the Bank released an Issues Paper in November 2019 that summarised recent developments in retail payments and highlighted a broad range of potential regulatory issues. In May 2021, the Bank released a Consultation Paper that outlined the Payments System Board's (PSB) preliminary views on the major issues and presented a draft set of standards. The PSB's final Conclusions to the Review of Retail Payments Regulation, including a final set of standards, were published in October 2021, which followed an extensive public consultation process.

Following extensive reforms as a result of the 2015-16 review, the 2019-21 review resulted in relatively minor changes to the regulatory framework for debit cards. The debit interchange standard was amended to reduce the cap on individual debit (and prepaid) interchange fees that are set in cents terms from 15 cents to 10 cents. This was supplemented by the introduction of a ‘sub-benchmark’ for single-network debit cards (SNDCs), which only allow payments to be processed through one debit network, such that the weighted-average interchange fee on SNDCs from a given scheme must be no more than 8 cents. The designated debit card schemes are also required to publish interchange fees on transactions on foreign-issued debit cards on their websites.

The Bank also introduced an expectation that all debit card issuers with more than 1 per cent of the total value of debit transactions should issue dual-network debit cards (DNDCs). In addition, all acquirers and payment facilitators providing card acceptance services to merchants are expected to offer and promote least-cost routing (LCR) functionality to merchants for in-person payments, and for online payments by the end of 2022.

See Media Release for further details.

More information

For details of debit card regulations, including designations of systems, standards, interchange fee benchmarks and voluntary undertakings see: ‘Regulations’. Information about consultations and regulatory decisions made in relation to the debit card system can be found here: ‘Consultations’ and ‘Regulatory Decisions’ Several resources are available that summarise credit and debit card regulations. For instance, see: A Guide to the Card Payments System Reforms, RBA Bulletin, September 2010 for a guide to earlier reforms. More recently, the Bank's 2014 submission to the Financial System Inquiry (Chapter 8) and the Bank's November 2019 Issues Paper provide detailed descriptions of the rationale for, and evolution of, card payments regulation in Australia since the early 2000s.