The Reserve Bank of Australia (RBA) has warned the country’s payment card industry that it is prepared to make further interventions to reduce card interchange levels in a bid to promote competition, unless the industry itself implements measures to open up the market.
Releasing its preliminary conclusions for the 2007-08 review of the payments system reforms undertaken by the Payment Systems Board, the board stated the three key changes it wanted to see implemented include: changes to the EFTPOS system to allow it to compete more effectively with the other card schemes over the longer term; card schemes allowing merchants the freedom to make independent acceptance decisions about each type of card for which a separate interchange fee applies; and an increase in the transparency of interchange fees and scheme fees.
The board’s review said it was prepared to back away from interchange fee regulation provided these measures were implemented by August 2009. If it is satisfied sufficient progress had been made, the board would proceed to remove the interchange regulations. However, if insufficient progress were made, “its current thinking is that interchange regulation would continue, with average interchange fees on credit cards being reduced” from around 0.5 per cent to 0.3 per cent. In addition, a common interchange fee of around A$0.05 ($0.04), paid to the cardholder’s financial institution, would be established for the EFTPOS system and the debit card system operated by the international card schemes.
“The board recognises that there is a possibility that, even with these changes, the competitive dynamics may still not be strong enough to deliver outcomes that promote the efficiency of the overall system,” the review stated. “As a result, if interchange fees in the credit card system did rise materially after the regulations were removed, the board would be prepared to reintroduce interchange regulation.”
Since 2002, the RBA has implemented a series of reforms that has seen credit card interchange fees for Visa and MasterCard reduced twice, from A$0.95 to A$0.55, and then to A$0.50. It has also reduced interchange fees on EFTPOS and Visa debit cards during this time.
However, the RBA said that while these reforms have, in its opinion, strengthened price signals, enhanced transparency and improved access, “close oversight of retail payment systems remains necessary”.
But the board stated it saw “no case for the removal of the no-surcharge and honour-all-cards standards”, and is now proposing further changes to the honour-all-cards standard to allow merchants greater choice about which cards to accept.
However, the board “remains concerned access arrangements for some payment systems continue to be unnecessarily difficult. It strongly encourages the industry to take further steps to improve these arrangements”.
The board wants the EFTPOS system to compete effectively with other card schemes and “remains concerned that unless the current governance arrangements in the EFTPOS system are improved, the system will have difficulty being an effective competitor over the longer run.”
The board also wants to improve transparency, particularly around average interchange fees and average schemes fees. The board said these should be published regularly and on a voluntary basis, but would be “prepared to consider regulation if that is necessary.” The bank is seeking submissions on its preliminary conclusions by 30 June 2008. New arrangements could be expected to be in place in the first quarter of 2010.