Review of Retail Payments Regulation – Issues Paper –
November 2019 1. Introduction

1.1 Background to this Review

Following the 1996–97 Wallis Inquiry, the Reserve Bank of Australia (the Bank) was given new regulatory powers with respect to the payments system and a new Board, the Payments System Board (the Board), was created to oversee the exercise of those powers. The Bank's powers are to be directed towards controlling risk in the financial system, promoting the efficiency of the payments system and promoting competition in the market for payment services, consistent with the overall stability of the financial system. In the early 2000s, the Bank introduced some reforms to credit and then debit card systems. These reforms have subsequently been reviewed periodically, with the most recent wide-ranging review taking place over 2015–16.

Card payments are now the most frequently used payment method in Australia. In 2018/19, Australians made 10 billion debit and credit card payments for a total value of $678 billion. This equates to an average of 395 payments per year and $26,800 for each Australian resident. Cards are increasingly being used for smaller value transactions where consumers once used to mainly use cash, with the average value of card transactions falling from $103 in 2009 to $66 in 2019.

Most of the costs of card payments are paid initially as merchant service fees by merchants, who then in turn will pass those costs on to consumers, either directly (through surcharges) or indirectly (through pricing of goods and services generally). In 2018/19, total merchant fees on card payments in Australia were $4.3 billion.

Two recent inquiries – one by the Productivity Commission, another by the Black Economy Taskforce (BETF) – made some recommendations relevant to the Bank's payments regulations. More generally, developments in technology, new entrants and innovation in payments have altered the retail payments landscape. In response to these developments, the Bank is undertaking a holistic review of the regulatory framework for card payments.

This Issues Paper is the first stage in the review process. It summarises relevant developments since 2015–16 and identifies some potential issues for the review. Key questions for stakeholders are included in Section 3 and collated in the Appendix. While some of the issues identified are directly relevant to the Bank's card payments regulation, the review is intended to be broader-ranging and to consider whether there are any gaps in the payments system that should be addressed, as well as whether there are any regulatory issues arising outside of the narrower topic of card payments. Stakeholders are encouraged to provide written submissions on these issues, and to raise any other payments issues that they think the Bank should consider as part of this review.

The Bank will review written submissions received and will endeavour to meet with stakeholders to discuss their submissions in more detail. If it emerges that in the Board's view a consultation on policy actions is in the public interest, the Bank will release a follow-up paper with detailed proposals for reform.