Reform of Debit Card Systems in Australia:
A Consultation Document – December 2005 5. Draft Access Regime

The draft Access Regime is set out in Attachment A. It should be considered in conjunction with the Access Code developed by APCA. Where possible, the definitions used in the Regime are cross-referenced to APCA's Code.

As discussed above, the Bank is of the view that the industry Access Code adequately addresses two of the key elements set out earlier for improved access to the EFTPOS payment system. The draft Access Regime is therefore restricted to issues that are not fully covered in the Access Code.

Cap on the access charge

The draft Access Regime requires that there be a cap on the access charge for new participants and sets out a methodology for determining that cap. From the time that the Access Regime comes into force until 31 December 2009, it is proposed that the charge to a new entrant be capped at the lowest estimated cost for providing a direct connection as measured in APCA's 2004 costs survey (paragraph 9). That cost is $78,000 (excluding GST).

From 1 January 2010, it is proposed that the cap be based on the minimum cost of direct connection from a survey (akin to APCA's 2004 survey) of the actual costs for such a connection incurred by access providers in the EFTPOS system over the preceding four years. The draft Access Regime does, however, contain provisions for the cap to be set using an alternative methodology in some circumstances. This reflects two considerations.

The first is that in the four-year period between re-calculations there may have been no new direct connections. In this event, it is proposed that the previous cap be adjusted for movements in the Consumer Price Index (CPI).

The second is that connections to too few institutions may have been made for a reasonable sample to be established to determine the connection costs of an efficient access provider. In particular, a difficulty would arise if all new direct connections happened to have been made to a small number of relatively high-cost access providers. In this case, the new cap would end up being set at a level above the connection cost of an efficient provider. This could act as a deterrent to new entrants to the EFTPOS system, reducing the competitive pressure on existing participants in the system.

To overcome this potential difficulty, it is proposed that if connections to fewer than three institutions have been made, the previous cap be adjusted for movements in the CPI, unless at least one of the institutions that provided a new connection reports a lower cost than the indexed cap. In that case, the lowest reported cost would be the new cap. If instead connections to three or more institutions have been made, the new cap would be established at the lowest reported cost. In the Bank's opinion, these arrangements strike a reasonable balance between the interests of current and potential future participants in the EFTPOS system.

The use of a four-year window between re-calculations also represents a reasonable balance between keeping the cap relevant to actual connection costs, on the one hand, and administrative burden, on the other. A longer interval might result in the access charge cap drifting out of line with prevailing actual costs for the efficient provision of a bilateral connection in the EFTPOS system – with potential ramifications for competition and efficiency. A shorter interval, however, could involve a greater compliance burden for EFTPOS access providers, as well as providing less certainty to new participants about entry costs. The Bank judges that a four-year interval between re-calculations is consistent with the promotion of competition and efficiency in the EFTPOS system.

No discrimination in interchange fees

The draft Access Regime also requires participants in the EFTPOS system to negotiate an interchange fee with a new entrant that is no less favourable to the new entrant than the least favourable interchange fee agreement the existing participant has with other existing participants. The provisions achieve this by requiring that, for any issuer, the interchange fee paid to a new acquirer be no less than the lowest interchange fee currently paid by that issuer to an acquirer. Similarly, for any acquirer, the interchange fee received from a new issuer must be no more than the highest interchange fee currently received by that acquirer from existing issuers. These requirements reflect the Bank's concern that negotiations over interchange fees could be used to frustrate entry of new participants, especially on the acquiring side of the market.