Credit Cards Regulatory Framework
In May 2016 the Reserve Bank released three new standards on merchant pricing (surcharging), and interchange fees for credit, debit and prepaid cards. The standard on merchant pricing commenced on 1 September 2016 although some clauses will not apply until June or September 2017. The standards on interchange fees will commence on 1 July 2017. In the meantime, previous standards continue to apply. For more information please see the Questions & Answers page or the section on Payments Card Regulation.
In line with its approach to regulation, since the early 2000s the Bank has introduced a number of reforms which have regulated limited elements of designated credit and debit card systems, with the aim of improving the efficiency of the Australian payments system and promoting competition in the provision of payment services.
In short, the current credit card regulations:
- cap credit card interchange fees to a weighted average of 0.50 per cent of transaction value
- remove restrictions so that merchants can pass on reasonable card acceptance costs to cardholders in the form of a surcharge
- remove restrictions that require merchants to accept the debit cards of a scheme if they accept that scheme’s credit cards and vice versa
- reduce barriers to entry through Access Regimes which help increase participation in payment systems.
Together the regulations have increased transparency and promoted more efficient price signals, thereby improving payment choices and contributing to a more efficient payments system overall. They have also improved competition by removing restrictions on merchants and liberalising access to systems.
Review of Card Payments Regulation
During 2015 and 2016, the Bank undertook a review of the regulatory framework for card payments. As part of this process the Bank released an Issues Paper in March 2015 that noted some developments in the payments system that raised concerns given the Bank’s mandate to promote competition and efficiency in the payments system. In December 2015 the Bank released a Consultation Document outlining proposed changes to the standards for card payment systems. The Conclusions to the Review of Card Payments Regulation were published in May 2016, following an extensive process of consultation.
The new interchange benchmarks, which take effect from 1 July 2017, will introduce a ceiling on individual interchange rates of 0.80 per cent. The weighted-average benchmark for credit card transactions will be maintained at 0.50 per cent. Compliance with the benchmark will be observed quarterly. To address issues of competitive neutrality, interchange-like payments to issuers in the American Express companion card system will be subject to equivalent regulation to that applying to the MasterCard and Visa credit card systems. More broadly, to prevent circumvention of the interchange standards, there will be limits on any scheme payments to issuers that are not captured within the interchange benchmarks.
For details of credit card regulations, including designations of systems, standards, access regimes, interchange fee benchmarks and voluntary undertakings see: ‘Regulations’. Information about consultations and regulatory decisions made in relation to the credit card system can be found here: 'Consultations' and ‘Regulatory Decisions’
Several resources are available that summarise credit and debit card regulations. For instance, see: A Guide to the Card Payments System Reforms, RBA Bulletin, September 2010 for a guide to earlier reforms. More recently, the Bank's 2014 submission to the Financial System Inquiry (Chapter 8) and the Bank's March 2015 Issues Paper provide detailed descriptions of the rationale for, and evolution of card payments regulation in Australia since the early 2000s.