Reserve Bank of Australia
Payment Systems (Regulation) Act 1998
Variation of Interchange Fee Standards
Explanatory Statement
Purpose and effect of variation of the interchange fee standards
Each of the three interchange fee Standards made by the Reserve Bank of Australia under Section 18 of the Act requires interchange fees to be set with reference to a benchmark, determined as follows:
- for the Standard for designated credit card schemes, the benchmark is calculated by the Reserve Bank from a survey of costs undertaken by nominated scheme participants;
- for the Standard for the Visa Debit system, the benchmark is calculated by the Reserve Bank from data collected under the interchange fee Standard for the designated credit card schemes; and,
- for the Standard for the EFTPOS system, the benchmark is calculated by the Reserve Bank from data provided by nominated EFTPOS acquirers.
In each case, the collection of cost data on which the benchmark is based was last undertaken in 2006. The Standards currently require updated cost studies to be undertaken every three years. A number of financial institutions have indicated to the Reserve Bank that the cost of compliance with these obligations is material. Given the possibility of a change to the regulatory environment in 2009, the industry will not be required to proceed with new cost studies at this time. The Reserve Bank is therefore varying the three interchange fee Standards to allow it to waive or suspend the obligation of participants to undertake cost studies and for the Reserve Bank to recalculate the respective benchmarks. Where the Reserve Bank decides to take this action, the benchmarks in existence at that time will continue to apply.
In order to ensure that the above changes do not affect existing obligations in relation to the level of interchange fees, the Reserve Bank is also varying the Standards for the designated credit card schemes and the Visa Debit system to clarify that the weighted average of interchange fees must still be below the benchmark on 1 November every third year, even if the benchmark is not recalculated.
The Reserve Bank considers that these variations are of a minor technical nature; they will reduce compliance costs but do not alter the fundamental purpose of the Standards.
8 December 2008
Overview
The Reserve Bank of Australia Payment Systems (Regulation) Act 1998 was enacted to regulate payment systems in Australia, ensuring they operate efficiently and effectively. The Act was designed to address gaps in the regulation of payment systems, particularly those involving interchange fees. The Reserve Bank of Australia, as the enacting body, has the authority to create Standards that govern interchange fees. The policy objective of these Standards is to ensure fair and reasonable interchange fees, protecting both consumers and participants in the payment system. In 2008, the Reserve Bank issued an explanatory statement regarding variations to the interchange fee Standards, noting that the benchmarks used to determine interchange fees had not been updated since 2006. To alleviate the burden of compliance costs on financial institutions, the Reserve Bank varied the Standards to allow for the waiver or suspension of cost studies and the recalculation of benchmarks. These changes aimed to reduce compliance costs without altering the fundamental purpose of the interchange fee Standards.
Scope and Application
The Reserve Bank of Australia Payment Systems (Regulation) Act 1998, as amended by the explanatory statement regarding the variation of interchange fee standards, applies to entities within the payment systems regulated by the Reserve Bank, specifically those involved in credit card schemes, the Visa Debit system, and the EFTPOS system. These entities include financial institutions, card issuers, and acquirers that participate in these payment systems. The geographic reach of this legislation is national, given the Reserve Bank's overarching role in regulating payment systems across Australia. While the Act itself outlines the primary obligations and standards, its application and enforcement are facilitated through subordinate instruments, which may include regulations or gazetted notices that provide further detail and operational guidelines. The variations to the interchange fee standards are intended to alleviate the compliance burden on financial institutions by allowing the Reserve Bank to waive or suspend the requirement for updated cost studies, thereby maintaining the existing benchmarks until further notice. These changes are minor and technical, designed to reduce costs without undermining the fundamental purpose of ensuring that interchange fees remain below the set benchmarks.
Key Provisions
The explanatory statement of the Reserve Bank of Australia Payment Systems (Regulation) Act 1998 Variation of Interchange Fee Standards (F2008L04668) outlines specific changes to the interchange fee Standards. These Standards, established under Section 18 of the Act, require interchange fees to be set with reference to a benchmark, which is calculated from a survey of costs undertaken by nominated participants in the credit card, Visa Debit, and EFTPOS systems. Given the last collection of cost data was in 2006, and considering the financial burden of new studies on financial institutions, the Reserve Bank is varying these Standards. It is now permissible for the Reserve Bank to waive or suspend the requirement for participants to undertake new cost studies and to recalculate the benchmarks (Section 18). This change ensures that the benchmarks in place will continue to apply until the Reserve Bank decides to take further action.
The obligations under the Act now include the continued requirement for the weighted average of interchange fees to remain below the benchmark on 1 November every third year, regardless of whether the benchmark has been recalculated. This variation aims to maintain the fundamental purpose of the Standards while reducing compliance costs for financial institutions. The Reserve Bank has deemed these variations as minor technical changes that do not alter the primary intent of the Standards. The updated Standards now explicitly state that the weighted average of interchange fees must still be below the benchmark, ensuring transparency and continuity in compliance obligations for the financial industry.
In terms of potential breaches, the Act does not explicitly outline specific offences or penalties for non-compliance with these variations. However, non-compliance with the Reserve Bank's directives under the Act could potentially lead to enforcement actions or other regulatory consequences, as the Reserve Bank has the authority to enforce compliance with the Standards. While the explanatory statement does not provide specific maximum penalties for breaches, it is clear that adherence to the revised Standards is crucial for financial institutions to avoid any regulatory repercussions. The Reserve Bank’s ability to enforce compliance ensures that the financial industry operates within the parameters set by the Act, maintaining the stability and integrity of the payment systems.