RESERVE BANK OF AUSTRALIA

Payment Systems (Regulation) Act 1998

EXPLANATORY STATEMENT:  Standard for the EFTPOS SYSTEM

Background

The Payments System Board of the Reserve Bank of Australia has held long-standing concerns about the competitive effects of different interchange fees and governance arrangements in the EFTPOS and scheme debit payment systems. Initially, it addressed these concerns by regulating to narrow the interchange fee differential between the two systems. But in its review of the card payment reforms, completed in September 2008, the Board indicated that it intended to further address its concerns by either removing regulation on both systems or, in the event regulation was maintained, making the regulations consistent. The adoption of the former option was contingent on the Board forming a view that governance arrangements and market structures were such that vigorous competition between the systems could be generated and maintained.

In August 2009, the Board decided to defer its broader decision on future regulation of card payments, and maintain the existing regulations so that it could gather more information on the likely evolution of the competitive landscape. A significant factor in this decision was that the new governance arrangements for the EFTPOS system had only recently been established and had not had sufficient time to demonstrate their effectiveness. But this deferral meant that the difference in regulatory treatment of the debit systems would remain for the time being and, in particular, that EFTPOS interchange fees would remain more tightly constrained than scheme debit interchange fees. The Board was of the view that this could limit the extent to which the newly established EFTPOS scheme could compete with the scheme debit systems prior to any final decision on the regulatory landscape more generally. It therefore decided to consult on the possibility of changing the regulation of EFTPOS interchange fees to be consistent with that applying to scheme debit. In November 2009 the Board decided to amend the Standard on the Setting of Interchange Fees in the EFTPOS system as described below. The revised Standard comes into force on 1 January 2010.

Purpose and Operation

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.

Consultation

The Bank called for submissions from interested parties in its media release of 22 September 2009. In total, 16 submissions were received, 13 of these by the deadline of 23 October 2009. The submissions were from banks, retailers, industry associations, card scheme operators, specialist financial institutions and an industry analyst. All parties who made submissions were provided with an opportunity to discuss their submission and the submissions of others with the Bank. The various opinions put forward as part of the consultation process are detailed in http://www.rba.gov.au/payments-system/reforms/debit-card-systems/rev-inter-stand-eftpos/rev-inter-stand-eftpos-112009.pdf.

Documents

• Gazettal Notice - Variation of the Standard for interchange fees in the EFTPOS system is available on the Reserve Bank’s website at http://www.rba.gov.au/payments-system/reforms/debit-card-systems/rev-inter-stand-eftpos/gazette-standard-27112009.pdf
• A Revised Interchange Standard for the EFTPOS System November 2009 is available on the Reserve Bank’s website at http://www.rba.gov.au/payments-system/reforms/debit-card-systems/rev-inter-stand-eftpos/rev-inter-stand-eftpos-112009.pdf
• Media Release Issued 27 November 2009 is available on the Reserve Bank’s website at http://www.rba.gov.au/media-releases/2009/mr-09-27.html

All documents can be obtained by contacting:

Manager, Media Office

Information Department

Reserve Bank of Australia

65 Martin Place, SYDNEY NSW 2000

Telephone (02) 9551 9720

Fax (02) 9221 5528.