Not content with intervening in the setting of interchange and ATM fees, the Reserve Bank of Australia (RBA) is now setting its sights on pushing the pace of change in online payments.
In a speech made at the Cards & Payments Australasia 2009 Conference on 24 March, Reserve Bank assistant governor Philip Lowe said the RBA’s scrutiny of online payments is being driven by what it sees as a lack of consumer choice, and warned the payment industry to get its act together or risk the RBA stepping in.
“Consumers wishing to buy goods online have few payment choices other than to use a card issued by the international schemes,” Lowe said. “This lack of choice weakens competition, and is likely to become a bigger issue as online commerce continues to grow.”
The theme of consumer choice has underpinned all of the RBA’s payment changes, but industry representatives cite the RBA’s credit card reforms as evidence of how too much regulation has thwarted the growth of the credit card market and led to substantial reductions in the level of benefits on offer to consumers.
This has not deterred the RBA from examining the influence it could wield in other payment sectors, and it is the burgeoning online payments sector that has now attracted its attention.
Lowe noted that a lack of coordination between participants in the online payments field was hampering innovation, saying that although efforts had been made to develop alternative online payment methods, most notably through the e-billing network BPAY, little headway had been made due to a lack of agreement between participating bodies and the decision had been made to postpone such projects until at least mid-2009.
Growing online card fraud
Online credit card fraud has also been cited by the RBA as a reason to warrant closer scrutiny. According to the RBA, internet fraud has jumped by more than 50 percent over the past year.
“Almost half the fraud on credit cards occurs in situations where the merchant does not physically see the card,” Lowe said.
“If this trend were to continue, it could undermine consumer confidence in transacting online which would have obvious costs.”
Even though the international payment networks Visa and MasterCard have embarked upon initiatives to improve security measures, Lowe claimed more needed to be done to improve the security of online payments systems, and the RBA would continue to push banks to enable consumers to pay online merchants from their deposit accounts using internet banking facilities.
However, such an option is not yet widely available in Australia.
Honour-all-cards rule change
Lowe also repeated warnings that the RBA wants the honour-all-cards rule changed to allow merchants more freedom to accept and reject cards, whereas the rule as it currently stands obligates card-accepting merchants to accept all cards from whichever payment network they are aligned with.
With a nod to the interchange controversy, Lowe said the RBA was considering lifting interchange restrictions in November 2009, but this was conditional on the industry doing more to promote competition and improve transparency.
“[The RBA] will only move in this direction though if industry itself is able to take steps to address the various concerns about the competitive forces in the system,” Lowe added.
Regarding the recent ATM reforms, which came into effect in early March allowing ATM operators to charge users directly instead of collecting fees from issuers, known as foreign fees, Lowe stated that although it was still early days, “the competitive forces are playing out broadly as expected”.
He added: “While we recognise the setting of foreign fees is ultimately a matter for each bank, our view is the system will work better without these fees, and the case for them is weak.”
However, Australian ATM operator Customers Ltd claims transaction volume dropped by 12 percent after the implementation of the reforms, although it didn’t disclose the size of transaction volume or average transaction size.