Payment Systems (Regulation) Act 1998 Variation of the Standard for interchange fees in the EFTPOS system (Cth)

RESERVE BANK OF AUSTRALIA

Payment Systems (Regulation) Act 1998

Variation of the Standard for interchange fees in the EFTPOS system

This notice is published in accordance with the requirements set out in section 29(2)(a) of the Payment Systems (Regulation) Act 1998 (the Act).

The Reserve Bank of Australia hereby varies the Standard The Setting of Interchange Fees in the EFTPOS System, gazetted on 27 April 2006 and amended on 8 December 2008, as it applies to the designated EFTPOS system in Australia. The varied Standard, to be complied with by participants in the EFTPOS system, is attached.

Summary of purpose and effect of the variation of the Standard

The purpose of this variation is to promote competition and efficiency in the Australian payments system by making the regulation of multilateral interchange fees in the EFTPOS system more consistent with that of the scheme debit systems until such time as the future regulatory landscape for card payments is decided. In particular, the varied Standard imposes a cap on the weighted average of multilateral interchange fees set by the newly established EFTPOS scheme (EFTPOS Payments Australia Limited) of 12 cents paid to the issuer – the same as for scheme debit interchange fees. All interchange fees in the EFTPOS system are currently constrained to between 4 and 5 cents, paid to the acquirer. This variation is expected to enhance the ability of the EFTPOS system to compete with the international debit card schemes.

The varied Standard does not change the way in which bilateral interchange fees are regulated. Bilateral interchange fees on purchase transactions will remain regulated between 4 and 5 cents paid to the acquirer. Leaving the regulation of bilateral interchange fees unchanged limits the risk that participants in the system will enter into potentially costly negotiations over interchange fees that could undermine competition from new or smaller participants.

Signed

GR Stevens

Governor

Reserve Bank of Australia

Date     27 November 2009

Standard

The Setting of Interchange Fees in the EFTPOS System

Objective

The objective of this Standard is to ensure that the setting of interchange fees in the designated EFTPOS payment system promotes:

(i)          efficiency; and

(ii)         competition

in the Australian payments system.

Amended and restated standard

1.   This Standard is an amended and restated Standard of that gazetted on 27 April 2006 and                amended on 8 December 2008.

Application

2. This Standard is determined under Section 18 of the Payment Systems (Regulation) Act 1998.

3.   This Standard applies to the payment system operated within Australia known as the         EFTPOS system, which was designated as a payment system on 9 September 2004 and            referred to below as the EFTPOS system.

4.   In this Standard:

an ‘acquirer’ is a participant in the EFTPOS system that provides services to a merchant to allow that merchant to accept a debit card;

a ‘bilateral interchange fee’ is an interchange fee that is agreed between two participants in the EFTPOS system for payment solely between those participants in relation to EFTPOS transactions;

‘cash out’ means the provision of cash to a cardholder by a merchant, as a result of a debit card transaction at the merchant;

‘debit card’ means a card issued by a participant in the EFTPOS system that allows the cardholder to make payments to merchants for goods or services and/or obtain cash out using the EFTPOS system by accessing a deposit account held at an authorised deposit-taking institution;

‘debit card transaction’ or ‘transaction’ means a transaction in Australia using the EFTPOS system;

‘financial year’ is the 12-month period ending 30 June;

an ‘interchange fee’ is a wholesale fee payable between an issuer and an acquirer or self-acquirer, directly or indirectly, in relation to a debit card transaction in the EFTPOS system;

an ‘issuer’ is a participant in the EFTPOS system that issues debit cards to its customers;

‘merchant’ means a merchant in Australia that accepts a debit card for payment for goods or services and/or that provides cash out;

a ‘multilateral interchange fee’ is an interchange fee that is determined by EFTPOS Payments Australia Limited to apply to transactions in the EFTPOS system between members of that system in the absence of a bilateral interchange fee agreement;

‘nominated EFTPOS acquirers’ are those acquirers and self-acquirers determined by the Reserve Bank of Australia, selected in order of their share of the number of transactions, who comprise the minimum number of such acquirers or self-acquirers required to account for at least 90 per cent of the number of transactions acquired in the EFTPOS system in the ‘reference year’;

‘reference year’ is the financial year prior to the relevant year;

‘relevant year’ is the financial year in which the bilateral interchange fee benchmark is calculated;

a ‘self-acquirer’ is a participant in the EFTPOS system that is a merchant that sends transactions directly to issuers rather than through an acquirer and takes on the responsibilities usually undertaken by an acquirer;

terms defined in the Payment Systems (Regulation) Act 1998 have the same meaning in this Standard.

5.   Each participant in the EFTPOS system must do all things necessary on its part to ensure                 compliance with this Standard.

6.   If any part of this Standard is invalid, the Standard is ineffective only to the extent of such part             without invalidating the remaining parts of this Standard.

7.   This Standard is to be interpreted:

·   in accordance with its objective; and

·   by looking beyond form to substance.

8.   This amended and restated Standard comes into force on 1 January 2010.

Bilateral interchange fees

9.   A bilateral interchange fee paid on any transaction, other than a transaction which includes a            cash out component, must be paid to the acquirer and be no more than the bilateral    interchange fee benchmark applying in accordance with paragraph 15 and no less than the    minimum fee specified in paragraph 16. 

Bilateral interchange fee benchmark

10. The interchange fee benchmark for bilateral interchange fees in the EFTPOS system is to be            calculated by the Reserve Bank of Australia as follows:

(i)    for each of the nominated EFTPOS acquirers, the aggregate value of its eligible costs in the reference year is to be divided by the number of its debit card transactions in the reference year. The outcome is to be expressed as a number of cents per transaction;

(ii)   the interchange fee benchmark is to be calculated by the Reserve Bank of Australia as the aggregate value of eligible costs in the reference year of the three nominated EFTPOS acquirers with the lowest outcome as calculated in paragraph 10(i), divided by the aggregate number of transactions undertaken by the same three nominated EFTPOS acquirers in the reference year. The result is to be expressed as a number of cents per transaction, rounded to the nearest cent.

11. Eligible costs are those directly related to processing and switching EFTPOS transactions                incurred by an acquirer or self-acquirer when performing the business responsibilities usually              undertaken by an acquirer.

12. Data on eligible costs must be drawn from accounting records of the nominated
       EFTPOS acquirers, prepared in accordance with generally accepted accounting principles                and Australian equivalents to International Financial Reporting Standards.

13. The data required to conduct the calculation in paragraph 10 must be provided by each      nominated EFTPOS acquirer to the Reserve Bank of Australia, or its agent, by 15 August in       the relevant year.

14. The Reserve Bank of Australia, or its agent, will review the data to determine if the costs     included are eligible costs and the Reserve Bank of Australia will use the eligible costs to       calculate the bilateral interchange fee benchmark in accordance with paragraph 10.

15. The Reserve Bank of Australia will publish the bilateral interchange fee benchmark for the            EFTPOS system by 15 September in the relevant year, and, subject to paragraph 19, this              benchmark will apply for three years from 1 November in the relevant year.

16. The minimum fee determined for the purposes of paragraph 9 is 80 per cent of the applicable         bilateral interchange fee benchmark.

Initial and subsequent bilateral interchange fee benchmarks

17. For the initial bilateral interchange fee benchmark for the EFTPOS system the relevant year               is the financial year 2006/07.

18. The bilateral interchange fee benchmark for the EFTPOS system is next to be re-calculated               in the financial year 2012/13 and every three years thereafter. The requirement to re-calculate the bilateral interchange fee benchmark in 2009/10 was waived by the Reserve Bank in December 2008.

19. The Reserve Bank of Australia may at any time, by notification on its website, waive or         suspend the requirement to re-calculate the bilateral interchange fee benchmark, in which               case the benchmark in force at that time will continue to apply.

Multilateral interchange fees

20. On each of the dates specified in paragraph 21, the weighted average of multilateral           interchange fees implemented in the EFTPOS system in Australia (excluding GST) must not       exceed the multilateral interchange fee benchmark set out in paragraph 24 below.

21. For the purposes of paragraph 20, the dates are:

(i)         1 November of every third year after 2009; and

(ii)        the date any multilateral interchange fee is introduced, varied or removed in the EFTPOS                                system.

22.    For the purposes of paragraph 20, the weighted average of multilateral interchange fees is to        be expressed as a number of cents per transaction. It is to be calculated by dividing the total      interchange revenue that would have been payable had the interchange fees implemented on            the dates specified in paragraph 21 been applicable in the previous financial year, by the        number of transactions in that year.

23. For the purposes of this standard, multilateral interchange fees paid from acquirers to issuers         are to be expressed as positive numbers and multilateral interchange fees paid from issuers            to acquirers are to be expressed as negative numbers.

Multilateral interchange fee benchmark

24. The multilateral interchange fee benchmark for the EFTPOS system will be the same as the             benchmark applying to the Visa Debit system, as varied from time to time, and which is             published on the Reserve Bank’s website.

25. The Reserve Bank of Australia may at any time, by notification on its website, waive or         suspend the requirement to re-calculate the multilateral interchange fee benchmark, in which         case the multilateral interchange fee benchmark in force at that time will continue to apply.

Transparency

26. EFTPOS Payments Australia Limited must publish any multilateral interchange fees applying           to EFTPOS transactions on its website or otherwise make these fees publicly available.

27. Each acquirer and self-acquirer with a bilateral interchange agreement in the EFTPOS       system must report to the Reserve Bank of Australia by 1 November each year the range of     bilateral interchange fees it received in the previous financial year. The Reserve Bank of            Australia will publish the industry range of bilateral interchange fees on its website.