Variation to the MasterCard and Visa Access Regimes: Details-stage
Regulation Impact Statement – March 2014 4. Options

Three options have been identified to meet the objectives described above:

maintain the status quo
remove the APRA SCCI regime while retaining some controls via the Access Regimes
remove all access regulation.

Through consultation, the Reserve Bank is satisfied that these options explore a range of feasible approaches in addressing the problem and meeting the objectives stated in Section 3. As discussed above, evidence suggests that the status quo may be imposing higher barriers to entry and ongoing costs for participants than those necessary to control for risk in the card payments system. The Reserve Bank has focused on exploring whether a relaxation in part or in full of the current regulations would better meet the objectives of regulation.

Submissions and views put forward in response to the Reserve Bank's consultation processes have been taken into consideration in further developing these options.

Option 1: Maintain the Status Quo

This option would retain the current MasterCard and Visa Access Regimes and continue to rely on ADI status to determine eligibility to participate in the schemes. Potential new entrants that are not already ADIs would need to satisfy APRA's prudential framework for SCCIs, including an authorisation process and ongoing compliance with a range of prudential requirements, together with application and ongoing fees.

Option 2: Remove the APRA SCCI Regime, but Retain Some Controls via the Access Regimes

Option 2 aims to provide the schemes with greater freedom to grant membership to new types of participants, while continuing to place some obligations on the schemes through the Access Regimes. Under this option, the Access Regimes would be varied to widen the range of entities eligible to participate in the MasterCard and Visa systems. Rather than the current approach where only ADIs are eligible, the proposed approach would make ADIs and entities that were SCCIs at a specified date eligible, but also provide the schemes with the discretion to allow additional types of entities to participate. The schemes would be required to make public their risk-based criteria for determining which additional entities would be eligible and for determining which eligible entities would be admitted as participants. Further confidence in the objectivity of the schemes' processes would be provided by requiring the schemes to report annually to the Reserve Bank on how they had used this discretion and on their compliance with the Access Regimes.

This option would only be effective if Banking Regulation 4 (which defines credit card issuing and acquiring to be banking business) were removed, meaning that the SCCI category of ADIs would no longer exist. So as not to lose the benefits of the earlier reforms, as noted above the amended Access Regimes would ensure that existing SCCIs remain eligible to participate in the schemes once the new arrangements come into place. However, it should be noted that this would not guarantee any individual entity ongoing membership; like any participant a former SCCI's membership could be withdrawn if over time it fell short of the scheme's requirements. These requirements, and the rights and obligations of participants more generally, would be prohibited from being discriminatory towards former SCCIs (or any other entity) other than on the basis of risk.

Option 3: Remove All Access Regulation

The third option is the complete removal of the Access Regimes, leaving access entirely in the hands of the schemes. Once again, this option would only be effective if Banking Regulation 4 was removed so that issuers and acquirers of credit cards were no longer required to be ADIs. In other words, access arrangements would be the same as prior to the reforms in 2004; the ability of current SCCIs or new entrants to participate would be determined solely by the schemes' willingness to admit them. As discussed earlier, there are some indications that the schemes are now more willing to admit new types of participants.

During consultation, the Reserve Bank considered the use of voluntary undertakings from the schemes under this option. However, some stakeholders were concerned with transparency of this approach, arguing that if regulation of network access were to continue, it should occur via a public, transparent process.

Options Not Considered to be Feasible

Alternative options that were frequently discussed in consultation were either to reduce the regulatory requirements for SCCIs or create a new category of regulated entities that would be subject to less onerous requirements. Neither is within the control of the Reserve Bank. APRA does not consider it possible to reduce supervisory imposts on SCCIs and an alternative supervisory framework would most likely require legislative change. This is discussed further in Section 6.

Note: Visa Debit Access Regime

The Access Regime for the Visa Debit system was put in place in 2005. At the time that the Visa credit card Access Regime was being developed, the Reserve Bank expected that an SCCI joining the Visa credit card system with the intention of acquiring credit card transactions would also be able to acquire Visa Debit transactions. However, Visa indicated that this may not have been the case since its own scheme rules may have precluded an SCCI from acquiring debit card transactions. The Reserve Bank considered two options: first, to request that Visa review and modify its rules; second, to impose an access regime on the Visa Debit system, mirroring that imposed on the Visa credit card system. While the first option would have avoided the need for further regulation, Visa's decision-making structure meant that rule changes were likely to involve not just its Australian operations but also its Asia-Pacific and international boards, and thus could take an extended period of time and would have an uncertain outcome. The second option was therefore more likely to promote competition in card acquiring, and would do so in a timely fashion. The same complication did not arise with respect to MasterCard, as it had different rules regarding eligibility to join the MasterCard system.