Reform of Debit Card Systems in Australia:
A Consultation Document – December 2005
6. Amended Draft Standard
The other element of the reforms proposed in this Consultation Document is an amended draft Standard for the setting of interchange fees in the EFTPOS system. This amended draft Standard is shown in Attachment B.
When the previous version of this draft Standard was released in February 2005, the Bank said that it expected that, if the Standard were implemented, ‘the maximum interchange fee in the EFTPOS system would be likely to be around 5 cents paid to the merchant's bank’.[1] That expectation is unaffected by the proposed amendments. The amended draft Standard continues to set a benchmark capping the interchange fee that may be paid to an acquirer (or a merchant principal), and does not change the way in which the benchmark is to be calculated.
The effect of the amendments is to narrow the range of possible interchange fees in the EFTPOS system. This reflects the Bank's concern that negotiations over interchange fees could be used to limit competition in the EFTPOS system. The Bank has not formed the view that non-zero interchange fees in the EFTPOS system are necessarily optimal, or that any non-zero interchange fee ought to flow from issuers to acquirers rather than vice versa. Rather, the amendments reflect a view that, to ensure a level playing field between participants in the EFTPOS system, both existing and potential, interchange fees paid and received should not vary greatly between participants. The amendments to the draft interchange Standard therefore narrow the range of possible interchange fees by requiring that the minimum fee that can be paid by an issuer to an acquirer (or a merchant principal) is 80 per cent of the benchmark (maximum) fee.
On the basis of the information currently available to it, the Bank estimates that the amended Standard would result in interchange fees ranging from 4 cents to the previously estimated cap of 5 cents, paid by issuers to acquirers. This would prevent participants in the system being placed at a material disadvantage to others. Lack of a floor – or allowance of a wider range of fees, as would result from using a lower percentage – could expose some existing and/or new participants (or gateways) to the risk of significantly less advantageous interchange fees than those applying to other participants. If this were to occur, it could undo the beneficial effects on competition of the proposed Access Regime and APCA's Access Code.
The Bank's earlier draft Standard on EFTPOS interchange fees has been amended to give effect to the changes described above. The paragraphs that have been added to or amended as a result are numbers 9, 15 and 16. Several other paragraphs incorporate minor drafting changes, including amending the definition of a ‘debit card transaction’ and replacing ‘benchmark’ with ‘interchange fee benchmark’ for clarity.
Footnote
Reserve Bank of Australia, Reform of the EFTPOS and Visa Debit System in Australia, Sydney, 2005, p2. [1]