Payment Systems (Regulation) Act 1998
Interchange Fees in the EFTPOS System: Explanatory Statement
Background
The Reserve Bank of Australia (the Bank) initiated a review of the EFTPOS regulatory framework in early 2012 in order to ensure that its regulation continues to meet its objectives in light of changes that have occurred in the system in recent years. Those changes include a shift from a system characterised by bilateral agreements between participants to one that is centrally managed by eftpos Payments Australia Limited (ePAL).
Reflecting these changes to the system, the Bank updated its designation of the EFTPOS system in Designation No 1 of 2012 as the original designation (Designation No 2 of 2004) no longer clearly defined the system. The Standard titled The Setting of Interchange Fees in the EFTPOS System (‘the 2006 Standard’), determined for the system under the original designation, is therefore no longer appropriate.[1]
The Bank’s review of the EFTPOS regulatory framework included a review of whether the form of its regulation of EFTPOS interchange fees was still appropriate, given recent changes in the system. Previously, interchange fees in the EFTPOS system had been constrained between 4 and 5 cents paid to the acquirer. In recognition of ePAL’s capacity to set interchange fees in the interests of the system, in 2009 the Bank amended its regulation so that multilateral EFTPOS interchange fees (those set by ePAL itself) were subject to the same 12 cent cap – paid to the issuer – as that applying to the international debit schemes. Bilaterally negotiated fees in the EFTPOS system, however, remained constrained between 4 and 5 cents paid to the acquirer.
Most participants in the EFTPOS system have now adopted multilateral fees. In line with this, the Bank decided in November 2012 that it is appropriate for bilaterally negotiated fees to be subject to a similar cap to multilateral fees. To give effect to this decision, it is necessary to revoke the 2006 Standard (based on the 2004 designation, Designation No 2 of 2004) and put in place a new Standard (i.e. applying to the system designated in Designation No 1 of 2012).
Purpose and Operation
The purpose of the Standard Interchange Fees in the EFTPOS System (‘the Standard’) is to promote competition and efficiency in the Australian payments system by ensuring that interchange fees in the EFTPOS system can be set within similar regulatory constraints to the other debit card systems.
The practical effect of the Standard, when combined with revocation of the Standard The Setting of Interchange Fees in the EFTPOS System as applied to the EFTPOS system designated in Designation No 2 of 2004, is to:
- apply regulation of the EFTPOS system to the system governed by the rules of EFTPOS Payments Australia Limited, in place of the system governed by the rules in the CECS manual for the Consumer Electronic Clearing System
- remove the requirement under the 2006 Standard for bilateral interchange fees in the EFTPOS system to be between 4 and 5 cents paid to the acquirer, and
- replace this with a requirement for bilateral fees to not exceed the benchmark set for the Visa Debit System – currently 12 cents paid to the issuer.
The weighted average of multilateral interchange fees in the EFTPOS system is also capped at the Visa Debit benchmark (as it was under the 2006 Standard). In addition, the Standard requires transparency of EFTPOS interchange fees, and introduces a requirement for ePAL to certify annually to the Bank that it has complied with the Standard.
The Standard will take effect on 1 July 2013.
Consultation
The Bank first announced in September 2011 that it would review aspects of the regulatory framework for the EFTPOS system to ensure that it continues to meet its objectives. In line with this, the Bank invited submissions on two consultation documents. The first, published on 9 March 2012, sought views on the appropriate form of designation for the EFTPOS system to reflect recent changes, and invited submissions from interested parties by 20 April 2012. After considering the views expressed during that consultation, the second consultation document was published on 12 June 2012, and submissions were invited by 31 July 2012. The June 2012 document outlined the Board’s decision on designation and possible options for the future regulatory framework for the EFTPOS system. After taking into account views expressed during consultation, a document detailing the final reforms was published on 29 November 2012.
Statement of Compatibility with Human Rights
For the purpose of the Human Rights (Parliamentary Scrutiny) Act 2011, section 42 (disallowance) of the Legislative Instruments Act 2003 does not apply to determinations of standards under section 18 of the Payment Systems (Regulation) Act 1998.
Documents
- RBA (2012), Review of the Regulatory Framework for the eftpos System: Consultation on Designation, March.
Available at <http://www.rba.gov.au/publications/consultations/201203-replacing-eftpos-designation/index.html>.
- RBA (2012), Review of the Regulatory Framework for the EFTPOS System: Consultation on Options for Reform, June.
Available at <http://www.rba.gov.au/publications/consultations/201206-rev-reg-frmwrk-eftpos-sys/index.html>.
- RBA (2012), The Regulatory Framework for the EFTPOS System: Final Reforms and Regulation Impact Statement, November.
Available at <http://www.rba.gov.au/payments-system/reforms/debit-card-systems/
201211-reg-frmwrk-eftpos-sys/index.html>.
Reserve Bank of Australia
SYDNEY
20 December 2012
[1] As a technical matter, the original designation is in place concurrently with the new designation and will not be revoked until the broader EFTPOS regulatory framework has been implemented. This avoids a period without any EFTPOS regulation in force.