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.
Reserve Bank of Australia
SYDNEY
27 November 2009
Overview
The Reserve Bank of Australia Payment Systems (Regulation) Act 1998 was enacted to ensure the stability and efficiency of Australia's payment systems, addressing the need for regulatory oversight in a rapidly evolving financial landscape. The Act empowers the Payments System Board of the Reserve Bank of Australia to regulate various aspects of payment systems, including interchange fees, to maintain fair competition and protect consumers. This legislative framework aims to balance innovation and efficiency within the financial sector while safeguarding the interests of consumers and the broader economy. The explanatory statement for the 2009 variation of the Standard for interchange fees in the EFTPOS system indicates that the purpose of this change was to enhance competition and efficiency within the Australian payments system. The Board sought to make the regulation of multilateral interchange fees in the EFTPOS system more consistent with that of scheme debit systems, thereby promoting a more level playing field for participants. The varied Standard imposes a cap on the weighted average of multilateral interchange fees, aligning it with the cap for scheme debit interchange fees, which was expected to improve the competitiveness of the EFTPOS system.
Scope and Application
The Reserve Bank of Australia Payment Systems (Regulation) Act 1998 applies to the regulation of payment systems in Australia, with a specific focus on interchange fees in the EFTPOS system. This legislation is intended to ensure that the payment systems in Australia operate in a competitive and efficient manner, which is particularly relevant to financial institutions, retailers, and consumers who engage in electronic funds transfer at point of sale (EFTPOS) transactions. The Act's regulatory reach extends across the entire Commonwealth of Australia, ensuring a uniform approach to payment system regulation. The legislation includes provisions for the Payments System Board to vary standards, as seen in the August 2009 decision to amend the Standard on the Setting of Interchange Fees in the EFTPOS system, effective from 1 January 2010. This amendment aimed to align the regulation of multilateral interchange fees in the EFTPOS system with those of scheme debit systems, thereby promoting competition and efficiency within the Australian payments system. Notably, the Act does not specify any exclusions or exemptions, applying broadly to all entities involved in EFTPOS transactions. Additionally, the Act provides for the creation of subordinate instruments to extend or restrict its application, allowing for flexibility in addressing emerging issues within the payment systems landscape.
Key Provisions
The main operative sections of the legislation (Sections 9 and 10 of the Reserve Bank of Australia Payment Systems (Regulation) Act 1998) pertain to the establishment of standards for interchange fees in the EFTPOS system. The Board, through these sections, has the authority to set and vary the standards governing these fees. The variation in question, effective from 1 January 2010, imposes a cap on the weighted average of multilateral interchange fees at 12 cents paid to the issuer, aligning it with the scheme debit interchange fees. This change is intended to facilitate competition and efficiency in the Australian payments system. However, the regulation of bilateral interchange fees remains unchanged, continuing to cap these fees between 4 and 5 cents paid to the acquirer to prevent potentially costly negotiations that could disadvantage new or smaller participants.
The Act imposes several obligations and requirements on the parties involved in the EFTPOS system. Firstly, EFTPOS Payments Australia Limited, the entity responsible for setting interchange fees, must comply with the new cap of 12 cents on the weighted average of multilateral interchange fees. This requirement is intended to ensure that the EFTPOS system can compete more effectively with international debit card schemes. Additionally, all participants in the EFTPOS system, including banks, retailers, and other financial institutions, must adhere to the prescribed fee limits. Compliance with these standards is crucial to maintaining a competitive and efficient payments environment in Australia.
Offences and penalties for breach of the provisions outlined in the Act are not explicitly detailed in the explanatory statement. However, it is implied that non-compliance with the set standards could lead to regulatory action by the Reserve Bank of Australia. The potential consequences for breach might include financial penalties, enforcement actions, or further regulatory measures aimed at ensuring compliance. The exact nature and severity of these consequences would likely be determined based on the specific circumstances of the breach and the impact on the payments system.
The explanatory statement does not provide explicit details regarding the maximum penalties for breaches of the provisions. Typically, under Australian law, penalties for breaches of financial services legislation can vary widely depending on the severity and intent of the breach. They may include fines, corrective measures, or other sanctions imposed by the relevant regulatory authority, in this case, the Reserve Bank of Australia. The potential penalties are designed to enforce compliance and deter non-compliance with the set standards.