An Access Regime for the Visa Debit System: A Consultation Document – July 2005 2. Background

The Bank designated the Visa Debit system in February 2004 as a payment system under the Payment Systems (Regulation) Act 1998. This followed designation of the Visa credit card system in April 2000.

After extensive consultation, an access regime was imposed on the Visa credit card system in February 2004 with the aim of improving competition and efficiency in the provision of credit card payment services.^[1] Amongst other things, the regime required that any organisation that is an authorised deposit-taking institution (ADI) be eligible to apply to participate in the Visa credit card scheme in Australia . It also required that Visa not discriminate between types of ADIs when assessing applications to participate in the credit card system. The same requirements were placed on the Bankcard and MasterCard schemes.

This access regime followed the creation in 2003 by the Australian Prudential Regulation Authority (APRA) of a special type of ADI known as a Specialist Credit Card Institution (SCCI). SCCIs are ADIs under the Banking Act 1959 but may only perform those activities associated with credit card issuing and/or acquiring; APRA has indicated that it has no objection to SCCIs also undertaking debit card acquiring. While SCCIs are not permitted to take deposits, they are supervised by APRA and required to meet prudential requirements consistent with the risks they incur. Details of these requirements can be found at www.apra.gov.au/ADI.

Prior to the creation of this special class of ADIs and the Bank's access regime coming into force, Visa's rules had the effect of limiting membership in Australia to those institutions that could accept demand deposits. Under this new, more liberal, access regime SCCIs are able to become members of the Visa credit card system even though they do not accept deposits.

At the time that the credit card access regime was being developed, the 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. Visa has indicated, however, that since the access regime strictly applies only to the credit card system, its rules may preclude an SCCI from acquiring debit card transactions given that an SCCI cannot accept deposits.

This same complication does not arise with respect to MasterCard, as all ADIs – regardless of whether or not they accept demand deposits – are eligible to join the MasterCard system.

In the Bank's opinion the current arrangements in the Visa system are not in the public interest. If an SCCI is not able to acquire both Visa credit and debit card transactions it may find it difficult to provide commercially competitive acquiring services. Indeed, given that Visa debit and credit cards are currently indistinguishable from one another, an inability to acquire Visa Debit transactions may effectively prevent an SCCI from acquiring Visa credit transactions. To the extent that restrictions in Visa's international membership rules continue to stand in the way of competition in credit and debit card acquiring in Australia, the Bank is of the view that further liberalisation of access arrangements is required.

Footnote

See Reserve Bank Media Release 2004-02 issued on 23 February 2004. [1]