Overview

The Payment Systems (Regulation) Act 1998 was enacted to address the need for effective regulation of payment systems in Australia. This Act provides a legislative framework for the Reserve Bank of Australia to set standards that ensure the efficiency, safety, and soundness of payment systems. One of the significant issues the Act aims to resolve is the setting of interchange fees in designated debit and prepaid card schemes, which was previously unregulated and subject to potential market distortions. The Act empowers the Reserve Bank to establish standards that govern these fees, ensuring they are fair and do not unfairly burden consumers or inhibit market competition. The policy objective underpinning this Act is to maintain a balanced and efficient payment system that supports economic activity while protecting consumers and maintaining financial stability. In 2016, the Reserve Bank introduced Standard No. 2 of 2016, which established benchmarks for interchange fees and required schemes to ensure their weighted-average interchange rates remain below these benchmarks. A minor technical variation to this standard was subsequently made in November 2017, extending the time period for resetting interchange rates from 60 days to two months and one day. This variation was enacted without formal consultation as it was deemed a minor technical change, aimed at reducing potential compliance costs for scheme participants. The Reserve Bank consulted informally with the affected card schemes, all of which supported the change.

Scope and Application

The Payment Systems (Regulation) Act 1998 applies to the regulation of payment systems in Australia, including the oversight of interchange fees and net payments to issuers within designated debit and prepaid card schemes. The Act empowers the Reserve Bank of Australia to set standards to ensure the efficiency, effectiveness, and safety of payment systems. This legislation encompasses various entities such as payment system operators, issuers, and acquirers who engage in payment transactions. The Act has a national jurisdictional reach across the Commonwealth of Australia, applying uniformly to all states and territories. There are no explicit exclusions mentioned in the explanatory statement, suggesting that the Act applies broadly to the designated scope unless otherwise specified. The Act may also extend its application through subordinate instruments, which allows for the implementation of detailed regulations and standards, such as the one discussed in the variation of Standard No. 2 of 2016. This minor technical variation to the interchange fee reset period exemplifies how the Act facilitates adjustments to regulatory standards to address practical concerns while maintaining the integrity of the payment systems.

Key Provisions

The Payment Systems (Regulation) Act 1998 (the Act) includes provisions for the Reserve Bank of Australia (the Bank) to set standards for payment systems. In particular, section 18(5)(b) allows the Bank to set minor technical variations to existing standards without the need for formal consultation. The Act empowers the Bank to determine standards that establish benchmarks for interchange fees in designated debit and prepaid card schemes, as well as net payments to issuers. The Standard No. 2 of 2016, which was introduced on 1 July 2017, sets an average interchange fee benchmark of 8 cents per transaction, with a maximum individual interchange rate of either 15 cents or 0.20 per cent. The Standard also mandates that the weighted-average interchange rates of designated debit and prepaid card schemes must be below the benchmark on a quarterly basis. If a scheme's weighted-average interchange fees, measured on a rolling-four-quarter basis, exceed the benchmark, the scheme is required to reset its rates or amounts within a specified time period. Under the Act, the Bank has the responsibility to monitor and enforce compliance with the standards it sets. This includes ensuring that designated debit and prepaid card schemes adhere to the interchange fee benchmarks and reset their rates or amounts if necessary. The Bank must also keep abreast of any changes in the payment systems landscape that may necessitate adjustments to the standards. The obligation on the schemes is to maintain their interchange rates within the prescribed benchmarks and to reset them promptly if they exceed the allowable limits. Failure to comply with these requirements may lead to regulatory action by the Bank. The Act imposes potential civil and criminal consequences for non-compliance with the standards set by the Bank. While specific penalties are not detailed in the explanatory statement, breaches of the Act or the standards can result in enforcement actions, which may include fines or other penalties. The severity of the consequences would depend on the nature and extent of the breach, as well as any relevant legal provisions. It is important for entities governed by the Act to ensure full compliance to avoid these potential repercussions.