Regulatory scrutiny in Australia has
been closely watched by payment players around the world, and while
some in the industry argue about how effective recent reforms have
been, Australian consumers continue to move away from cash to
electronic payments in all forms. John Hill reports.


Australia’s payment card market is renowned
for its tough regulation and high levels of intervention by the
government. The year 2009 has been no exception, with the Reserve
Bank of Australia (RBA) placing continuing scrutiny on interchange
rates as well as looking into both ATM fees and online

Use of non-cash payments in Australia
continued to rise over 2008/09 at a rate similar to that of recent
years. Trends in payment methods also continued, with cheque use
continuing to decline and usage of electronic methods of payment

The recent trend in card payments, towards
debit and away from credit, accelerated in 2008/09, while BPAY (an
internet payment method) also continued to grow strongly. Other
developments during the year were an increase in credit card fraud
and rapid adoption by merchants of the surcharging of credit and
charge cards.

Card numbers continue to

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In terms of card numbers, there were
14.35 million credit and charge cards in issue at the end of August
2009, up only 2 percent on August 2008, when there were 14.07
million cards. As for debit, there were 30.72 million cards in
issue at the end of August 2009, up 9 percent from 28.12 million in
August 2008.

While the increase in credit and charge card
numbers has not been significant, especially compared to large
increases for debit, it seems that in the last year, while
Australians have not been taking out many more charge or credit
cards, they have been using the ones they have more frequently.

The total number of transactions from
September 2008 to August 2009, 1.484 billion, was up 3.7 percent on
the same period for the previous year, while total transactional
value for September 2008 to August 2009 was A$222 billion ($205
billion), up 3.1 percent from the same period the year before.

With the Australian population at around 22
million, this means there are approximately 1.5 debit cards per
person compared to about 0.75 credit or charge cards per person.
While there is a higher volume of transactions made using debit
cards in Australia, the value of credit card transactions is higher
on average at A$149, compared with A$68 for debit cards at the
point of sale.

In 2009 Australia also introduced EFTPOS
Payments Australia. The new company is owned and funded by its
members and has commercial responsibility for managing and
promoting the domestically developed Australian debit card

There are 14 initial members: ANZ, Australian
Settlements Limited, Bank of Queensland, Bendigo and Adelaide Bank,
Cashcard, Citigroup, Commonwealth Bank of Australia, Coles Group,
Cuscal, Indue, National Australia Bank (NAB), Suncorp-Metway,
Westpac and Woolworths.

According to Chris Hamilton, CEO at the
Australian Payments Clearing Association (APCA): “Right now about
four-fifths of debit card activity in Australia is on EFTPOS and
about one-fifth is scheme debit.”

Interchange under constant

The RBA’s assertive approach to
regulating the market has seen interchange rates in Australia come
under constant scrutiny. A series of reforms implemented by the RBA
over the last decade has seen interchange reduced with the aim of
stimulating competition and reducing prices at the point of

Whether this has actually had the desired
result is up for discussion, although John Simon, chief manager for
the Payments Policy Department of the RBA, seemed unsure when asked
at a recent conference whether he believed the large interchange
reductions over the past few years had benefited the consumer.

“There are so many different things that might
go into a price change of a A$0.98 can of Coke to a A$0.96 can of
Coke that its impossible to say whether or not that reflected the
lowered interchange rate or something else, a global economic
downturn, for example,” he said.

On average, the fee paid by merchants when
accepting payments on MasterCard and Visa credit cards was
unchanged in 2008/09. The average merchant service fee for
purchases on these cards was 0.81 percent in 2008/09, the same as
the previous year. Likewise, the margin between merchant service
fees and interchange fees on MasterCard and Visa transactions –
which has contracted over recent years – remained stable in

An important element of the RBA’s reforms to
card payment systems was the removal of the ‘no surcharge’ rule
that had previously been imposed on merchants by the international
card schemes. Under these rules, merchants were unable to pass on
the costs of accepting these cards to cardholders.

Following the removal of these rules at the
beginning of 2003, merchants could choose to surcharge for
transactions, allowing them to pass on relative costs of different
payment methods to the consumer, which then also gave consumers a
choice of which payment type they prefer to use directly linked to
its costs.

According to the RBA Payment Systems Board’s
annual report, data from research firm East & Partners’
half-yearly survey of the merchant acquiring market illustrates
that there has been strong growth in surcharging by merchants over
recent years, although the majority of merchants still do not

In June 2009, just over one-third of very
large merchants (those merchants with annual turnover exceeding
A$340 million) imposed a surcharge on at least one of the credit
cards they accepted. The rate of surcharging among smaller
merchants has also risen noticeably over the past several years,
although it is still around half the rate of larger merchants.
According to the report, this trend is set to continue.

Fraud levels and online

Fraud rates in Australia have
remained relatively low by international standards. The most recent
data shows that payment fraud rose to A$0.082 cents for every
A$1,000 of payments in the year to December 2008, from A$0.063
cents in the preceding year.




Credit and charge card fraud continued to be
the most significant and fastest growing component of payments
fraud in Australia, and in the year to December 2008, the rate of
fraud on credit and charge cards increased by 19 percent, from
A$0.45 to A$0.53 for every A$1,000 of credit and charge card

The fraud rate on debit cards fell from
A$0.072 to A$0.066 cents, while for cheques, fraud rates remained
at less than A$0.01 per A$1,000. The weighted-average fraud rate
for debit and credit cards together was A$0.32 for every A$1,000
transacted during 2008, up from A$0.28 in 2007.

The two largest components of credit and
charge card fraud are card-not-present (CNP) fraud and counterfeit
or skimming fraud. CNP fraud typically involves the theft of
genuine card details which are then used to make a purchase over
the internet, by phone, or by mail order. This type of fraud
increased by 33 percent in 2008, and accounted for nearly half of
the total value of credit and charge card fraud.

Counterfeit/skimming fraud typically involves
the creation of a fake card using compromised details from the
magnetic stripe of a genuine card. This was the second most common
type of card fraud in 2008, accounting for one-third of the value
of all credit and charge card fraud. The planned move to chip and
PIN should help to reduce this type of fraud significantly.

Australia introduced the BPAY system in 1997,
and now more than 170 Australian banks, credit unions and financial
institutions are participating members, covering around 90 percent
of Australian consumer bank accounts. BPAY is a payment method
allowing internet banking or telephone banking payments to
registered BPAY merchants.

BPAY was the world’s first single-bill payment
service to be adopted across the banking sector. Each month
approximately 18 million bills to the value of A$11 billion are
paid to more than 16,000 businesses using BPAY. In 2002 BPAY View
was introduced, a bill payment service that delivers bills and
statements electronically through Australian internet banking

In 2008/09, the number and value of BPAY
payments grew by around 12 percent, faster than all other non-cash
payment methods except for debit cards. The average value of a BPAY
transaction was fairly steady at around A$700, reflecting the
concentration of payments in a small number of merchant categories
where transactions are related to large household payments. These
categories include, for example, housing and utilities, insurance
payments and payment of taxes and fines.

Australian payment

In June 2009 there were 27,108 ATM
terminals in the country, up 5.6 percent on June 2008 when there
were 25,658. For the same time frame there were 669,165 EFTPOS
terminals in June 2009, up 1.7 percent from 658,033 in June 2008.
So far for 2009, average transactions per month at ATMs number 70.8
million, compared to 165 million EFTPOS transactions and 118.8
million credit card transactions.

EFTPOS was the only platform that saw an
increase in the number of transactions per month, rising 14 percent
from 2008’s figure of 144.6 million transactions. ATM withdrawal
transactions per month were down 2.8 percent from 72.9 million in
2008 and credit card transactions per month were also down, but
only 0.1 percent from 119 million in the previous year.

Cheque clearing has been gradually lessening
in the country from around 70 million cheques per month with a
value of A$319.5 billion in 2000, to 33.6 million cheques per month
in 2009 with a value of A$132.8 billion. The rate of decline now
seems to be slowing, as in 2008 the figures were 33.7 million items
per month at A$139.3 billion in total value.

In March this year changes to the Australian
ATM system, agreed by the industry in mid-2007, came into effect.
The aims of the reforms were to develop an objective and
transparent ATM access code, to allow ATM owners discretion on what
they charged cardholders for use (although any imposed charges had
to be disclosed before the transaction), and the abolition of
bilateral interchange fees paid by banks and other financial
institutions to ATM owners for the provision of ATM services.

The new industry access code, combined with
the removal of bilaterally-negotiated interchange fees and a cap on
connection costs, was designed to make access to the ATM system as
a direct participant easier, while greater transparency of ATM fees
through disclosure at the ATM would directly benefit consumers and
would promote greater competition on fees between ATM owners.
Flexibility in pricing would mean ATMs could be deployed in
locations where they might not have been otherwise.

According to the RBA, early evidence suggests
that the reforms are having the anticipated effect. Customers
appear to be responding to more transparent pricing of foreign ATM
transactions, deployment of ATMs appears to be expanding and there
has been some early evidence of direct price competition.

The overall cost of a post-reform foreign ATM
transaction in many cases is similar to that prior to the reforms.
For instance, a major bank customer making a foreign ATM withdrawal
prior to 3 March would have paid a A$2 foreign fee to their own
bank, but no fee directly to the ATM owner. Within a short period
of the implementation of the reforms, most institutions had ceased
levying foreign fees.



ANZ has around six million personal,
private banking, small business, corporate, institutional and asset
finance customers worldwide and offers a range of Visa and
MasterCard-branded cards. At the end of 2008 it had A$7.4 billion
outstanding on its cards, compared to A$6.6 billion the previous

ANZ also released several new products during
the year, including the MySpace Recharge card, the first reloadable
prepaid Visa card in Australia, as well as the ANZ Stadium Visa
payWave contactless card.

ANZ announced a 1 percent per annum reduction
on its credit card APRs, starting in March, following a reduction
of 1.25 per cent per annum in January, after criticism from
regulators about the high rates it was charging. The bank also
announced its buy-out of part-owned ANZ-ING in a deal with ING to
acquire its 51 percent of its shareholding in the ANZ-ING joint
ventures, for a total purchase price of A$1.76 billion.

ANZ was also involved in an ATM scam involving
one of its machines in Melbourne, in which around A$500,000 was
stolen. A skimming device was suspected to have scanned about 5,000
cards, forcing the bank to cancel around 2,000 customers’



Commonwealth Bank of Australia (CBA)
had around 18.2 percent market share in credit cards as of 2008,
and credit card outstandings of A$7.8 billion at the end of 2008,
compared to A$7.1 billion the previous year.

CBA launched several payment initiatives
during the year, including contactless terminals for MasterCard
PayPass and Visa payWave propositions. Contactless cards can be
used at around 2,000 terminals and should increase CBA’s market
share in the sector, building on the 3 million CBA PayPass cards
currently in issue. CBA also launched the Travel Money Card in
conjunction with MasterCard, the first Australian prepaid travel
card that enables travellers to lock in the exchange rate.

As well as contactless terminals, CBA
announced it would step up its mobile internet banking service,
increasing usability and ease of access.

Customers can now check account balances and
scheduled transactions, transfer funds to third-party bank
accounts, pay bills using BPAY, review future transactions, view
current applications with the bank and locate their nearest CBA
branch or ATM.

Towards the end of last year, CBA acquired the
Bank of Western Australia (Bankwest) and St Andrew’s Australia from
UK bank HBOS for around A$2.1 billion, giving it a combined
customer base of around 11 million.


National Australia Bank (NAB) has
increased its share of credit card outstandings, with its full-year
2008 results showing outstandings at A$5.2 billion, compared to
A$4.9 the previous year.

The bank, which also owns Clydesdale and
Yorkshire banks in the UK, found itself in hot water in April this
year when it refused to pass on interest rate cuts to mortgage
holders, blaming the rising cost of wholesale funding.

NAB’s Australian operation – which accounts
for two-thirds of group profit – was held back by a fall in
earnings at its wealth management division, MLC. Cash earnings of
A$1.6 billion were nonetheless up 1.9 percent as revenue rose
around 10 percent. Meanwhile the British arm experienced a 64
percent slump in cash earnings to only £50 million (A$103.7

NAB was also the first of the big local banks
in Australia to abolish overdrawn account fees, which contribute
about A$1.2 billion in annual revenue for the banking sector, and
led other major banks to say they are considering following

NAB axed the A$30 overdrawn charge from all of
its personal savings accounts and personal transaction accounts at
the beginning of October, following an especially large number of
complaints from customers.


Westpac showed a decrease in card
outstandings from the first half of 2009, at A$7.4billion, down
from A$7.43billion at the end of 2008. Delinquencies rose within
the bank as the economy slowed, with 90-day credit card
delinquencies for the interim period of 2009 rising 12 basis points
from the full year 2008 to 95 basis points.

As the bank tightened approval criteria on
credit cards and personal loans, 30-day credit card delinquencies
went down 10 basis points over the last 12 months, with personal
loan 30-day delinquencies down 49 basis points, despite tougher
economic conditions.

According to the bank, Australian customers
also paid more off their credit cards as the average credit card
payments to balance ratio adjusted upward by 150 basis points from
interim 2007 to 41.2 percent in the interim period for 2009.

Westpac took over smaller Australian bank St.
George bank late in 2008 for A$17 billion, creating Australia’s
largest bank. Relative to Westpac’s card portfolio (worth
approximately A$7.5 billion), St George has a small portfolio
(approximately A$1.8 billion) with more low rate revolving credit


Australia: Usage of payment systems

Australia: Non-cash retail payments


Australia: Credit card payment figures