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

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

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

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.

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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

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

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.