Common Benchmark for the Setting of Credit Card Interchange Fees – November 2005 6. Final Standard

Reflecting consultation and the analysis above, the Bank has decided to modify the Standard on interchange fees in the designated credit card schemes. A copy of the new Standard is attached. The current scheme-specific benchmarks will be replaced with a common benchmark for all schemes. The common benchmark is to be calculated by the Bank as a weighted average of scheme-specific measures. In determining the benchmark, the Bank will use as weights the shares of each scheme in the total value of credit card transactions undertaken in all the schemes. The Bank will publish the common benchmark by 30 September of any year that the benchmark is calculated. The first such calculation will be done in 2006.

The final Standard involves relatively minor changes from both the Version A draft Standard that was released in July and the existing Standard. The only substantive change from the Version A draft is that the new method for selecting nominated scheme participants proposed in that draft has been removed and replaced with the existing method. Compared with the existing Standard, the new Standard includes an extra step where the scheme-specific benchmarks under the old standard are averaged to create the new common benchmark.

All other aspects of the current arrangements will be retained. Schemes will continue to select the nominated scheme participants as under the current Standard and individual scheme experts will continue to be used. There have been other minor changes from the existing Standards that are not substantive.

Implementation

This Standard applies to all three designated credit card schemes. It will come into force on 1 July 2006 and the benchmark set under it will become effective from 1 November 2006. The current standards, ‘Standard No. 1, The Setting of Wholesale (‘Interchange’) Fees’ which apply to each of the schemes individually, will be revoked on 1 July 2006. The transition provision in the new standard provides that the scheme-specific benchmarks determined under the existing Standards will be effective until 31 October 2006.

The cost-based measure for each Scheme must be calculated and provided to the Bank by 15 September 2006 and each third anniversary thereafter. If the Bank agrees in writing, a recalculation of the cost-based measure for each Scheme and of the common benchmark may be undertaken at other times if changes in eligible costs or other factors warrant.