Reform of the EFTPOS and Visa Debit Systems in Australia:
Final Reforms and Regulation Impact Statement – April 2006 Access Regime and Standards

Access Regime for the EFTPOS System

Objective

The objective of this Access Regime is to promote competition and efficiency in the Australian payments system, having regard to:

1. the interests of current participants in the EFTPOS system;
2. the interests of people who, in the future, may want access to the EFTPOS system;
3. the public interest; and
4. the financial stability of the EFTPOS system.

Application

1. This Access Regime is imposed under Section 12 of the Payment Systems (Regulation) Act 1998.
2. This Access Regime applies to the payment system operated within Australia known as the EFTPOS system, which was designated as a payment system on 9 September 2004 and referred to below as the EFTPOS system.
3. In this Access Regime:

4. Each participant in the EFTPOS system must do all things necessary on its part to ensure compliance with this Access Regime.
5. If any part of this Access Regime is invalid, it is ineffective only to the extent of such part without invalidating the remaining parts of this Access Regime.
6. This Access Regime is to be interpreted:

• in accordance with its objective; and
• by looking beyond form to substance.

7. This Access Regime comes into force on [31 May 2006].

Price of access

8. The Access Charge levied by an Access Provider for providing the Standard Service to an Access Seeker must not exceed the benchmark, calculated in accordance with paragraphs 9 to 16 below, applying on the date the Access Agreement is entered into.

Methodology for calculation of the Access Charge benchmark

9. For the period from [31 May 2006] to 31 December 2009 the benchmark for the Access Charge in the EFTPOS system is the lowest estimated cost for providing a direct connection as measured in APCA's 2004 costs survey. This cost is $78,000 (excluding GST).
10. A new benchmark will apply from 1 January 2010, and every four years thereafter, determined in accordance with paragraphs 11 to 16 below.
11. In the final year of application of a given benchmark, to be known as the ‘re-calculation year', all Access Providers in the EFTPOS system who have provided the Standard Service to an Access Seeker during the four years to 30 June of that year must complete a survey of the eligible costs they incurred in providing the service to each such Access Seeker.
12. The form of the survey, including the set of assumptions, is to be substantively the same as APCA's 2004 costs survey, with any variations to be approved by the Reserve Bank of Australia prior to the survey being undertaken. Eligible costs are to be specified in the survey, and must be only incremental direct costs incurred in providing the Standard Service. Access Providers may appoint an agent to co-ordinate this survey.
13. Access Providers must use data on eligible costs drawn from accounting records prepared in accordance with generally accepted accounting principles and Australian equivalents to International Financial Reporting Standards. Where an Access Provider has provided the Standard Service to more than one Access Seeker during the four years to 30 June of the re-calculation year, it must provide separate data on the costs incurred in providing each Standard Service. Each such provision of data counts as a separate survey response for the purposes of paragraph 16.
14. Results of the survey are to be provided by each Access Provider to the Reserve Bank of Australia on a confidential basis by 15 August of the re-calculation year, unless an extension of this deadline is agreed to in writing by the Reserve Bank of Australia.
15. Each Access Provider may be required by the Reserve Bank of Australia to explain information in its survey responses. The Reserve Bank of Australia will review the data from each Access Provider to determine if the costs included are eligible costs and the Reserve Bank of Australia will use only eligible costs to calculate the benchmark in accordance with paragraph 16 below.
16. The Reserve Bank of Australia will calculate the new benchmark to apply for the four-year period commencing 1 January of the year following the re-calculation year. If the Reserve Bank of Australia receives survey responses from three or more different Access Providers, the new benchmark is to be the lowest actual cost for provision of the Standard Service from among all survey responses. If the Reserve Bank of Australia receives survey responses from fewer than three different Access Providers, the new benchmark is to be the lower of:

1. the lowest actual cost for provision of the Standard Service from among all survey responses; and
2. the benchmark applying during the re-calculation year adjusted for the change in the Australian Consumer Price Index between the June quarter of that year and the June quarter of four years earlier.

Transparency

17. The Reserve Bank of Australia will publish the new benchmark by 30 September of the re-calculation year.

No discrimination

18. An acquirer or self-acquirer who becomes a participant in the EFTPOS system for the first time, on or after [31 May 2006], is for three years entitled to receive an interchange fee from an issuer with whom it has an Access Agreement no less than the lowest interchange fee payable by that issuer to an existing acquirer or self-acquirer.
19. An issuer who becomes a participant in the EFTPOS system for the first time, on or after [31 May 2006], is for three years not required to pay an acquirer or self-acquirer with whom it has an Access Agreement an interchange fee greater than the highest interchange fee payable by an existing issuer to that acquirer or self-acquirer.

Standard

The Setting of Interchange Fees in the EFTPOS System

Objective

The objective of this Standard is to ensure that the setting of interchange fees in the designated EFTPOS payment system promotes:

1. efficiency; and
2. competition

in the Australian payments system.

Application

1. This Standard is determined under Section 18 of the Payment Systems (Regulation) Act 1998.
2. This Standard applies to the payment system operated within Australia known as the EFTPOS system, which was designated as a payment system on 9 September 2004 and referred to below as the EFTPOS system.
3. In this Standard:

4. This Standard refers to wholesale fees, known as ‘interchange' fees, which are payable between an issuer and an acquirer or self-acquirer, directly or indirectly, in relation to a debit card transaction in the EFTPOS system.
5. Each participant in the EFTPOS system must do all things necessary on its part to ensure compliance with this Standard.
6. If any part of this Standard is invalid, the Standard is ineffective only to the extent of such part without invalidating the remaining parts of this Standard.
7. This Standard is to be interpreted:

• in accordance with its objective; and
• by looking beyond form to substance.

8. This Standard comes into force on 1 July 2006.

Interchange fees

9. From 1 November 2006, an interchange fee must be paid on any transaction, other than a transaction which includes a cash out component, by an issuer to an acquirer (or self-acquirer) and must be no more than the interchange fee benchmark applying in accordance with paragraph 15 and no less than the minimum fee specified in paragraph 16.

Methodology

10. The interchange fee benchmark for the EFTPOS system is to be calculated by the Reserve Bank of Australia as follows:

1. for each of the nominated EFTPOS acquirers, the aggregate value of its eligible costs in the reference year is to be divided by the number of its debit card transactions in the reference year. The outcome is to be expressed as a number of cents per transaction;
2. the interchange fee benchmark is to be calculated by the Reserve Bank of Australia as the aggregate value of eligible costs in the reference year of the three nominated EFTPOS acquirers with the lowest outcome as calculated in paragraph 10(i), divided by the aggregate number of transactions undertaken by the same three nominated EFTPOS acquirers in the reference year. The result is to be expressed as a number of cents per transaction, rounded to the nearest cent.

11. Eligible costs are those directly related to processing and switching EFTPOS transactions incurred by an acquirer or self-acquirer when performing the business responsibilities usually undertaken by an acquirer.
12. Data on eligible costs must be drawn from accounting records of the nominated EFTPOS acquirers, prepared in accordance with generally accepted accounting principles and Australian equivalents to International Financial Reporting Standards.
13. The data required to conduct the calculation in paragraph 10 must be provided by each nominated EFTPOS acquirer to the Reserve Bank of Australia, or its agent, by 15 August in the relevant year.
14. The Reserve Bank of Australia, or its agent, will review the data to determine if the costs included are eligible costs and the Reserve Bank of Australia will use the eligible costs to calculate the interchange fee benchmark in accordance with paragraph 10.
15. The Reserve Bank of Australia will publish the interchange fee benchmark for the EFTPOS system by 15 September in the relevant year, and this benchmark will apply for three years from 1 November in the relevant year.
16. The minimum fee determined for the purposes of paragraph 9 is 80 per cent of the applicable interchange fee benchmark.

Initial and subsequent interchange fee benchmarks

17. For the initial interchange fee benchmark the relevant year is the financial year 2006/07.
18. The interchange fee benchmark is to be re-calculated in the financial year 2009/10 and every three years thereafter.

Transparency

19. Commencing in 2007, each acquirer and self-acquirer in the EFTPOS system must report to the Reserve Bank of Australia the weighted average interchange fee it received and the range of interchange fees it received in the previous financial year by 1 November each year. The weights to be used in this calculation are the shares of transaction value to which each interchange fee applies. In 2007, this requirement applies to the 8 months ending 30 June 2007.
20. The Reserve Bank of Australia will publish the industry weighted average of interchange fees on its website.

Standard

The Setting of Interchange Fees in the Visa Debit Payment System

Objective

The objective of this Standard is to ensure that the setting of interchange fees in the designated Visa Debit payment system promotes:

1. efficiency; and
2. competition

in the Australian payments system.

Application

1. This Standard is determined under Section 18 of the Payment Systems (Regulation) Act 1998.
2. This Standard applies to the payment system operated within Australia known as Visa Debit, which was designated as a payment system on 23 February 2004.
3. In this Standard:

4. This Standard refers to wholesale fees, known as ‘interchange' fees, which are payable between an issuer and an acquirer, directly or indirectly, in relation to a Visa Debit card transaction.
5. Each participant in the Visa Debit system must do all things necessary on its part to ensure compliance with this Standard.
6. If any part of this Standard is invalid, the Standard is ineffective only to the extent of such part without invalidating the remaining parts of this Standard
7. This Standard is to be interpreted:

• in accordance with its objective; and
• by looking beyond form to substance.

8. This Standard comes into force on [1 July 2006].

Information

9. The administrator of the Visa Debit system must provide to the Reserve Bank of Australia data on the number and value of Visa Debit card transactions in Australia in the reference year, if such data are available. In the event that such data are unavailable, the administrator must provide information on the number and value of Visa Debit card transactions in Australia that were processed by the Visa system in the reference year.

Interchange fees

10. From 1 November 2006, on each of the dates specified in paragraph 11, the weighted average of interchange fees implemented in the Visa Debit system in Australia must not exceed the benchmark calculated in accordance with paragraphs 13 and 14 below.
11. For the purposes of paragraph 10, the dates are:

1. 1 November in any year the benchmark must be calculated; and
2. the date any interchange fee is introduced, varied or removed in the Visa Debit system.

12. For the purposes of paragraph 10, the weighted average of interchange fees is to be expressed as a number of cents per transaction. It is to be calculated by dividing the total interchange revenue that would have been payable had the interchange fees implemented on the dates specified in paragraph 11 been applicable in the previous financial year, by the number of transactions in that year.

Methodology

13. The benchmark is to be calculated by the Reserve Bank of Australia using data for the reference year supplied by the credit card schemes designated by the Reserve Bank of Australia and to which the Standard The setting of wholesale (‘interchange') fees in the designated credit card schemes applies.
14. The benchmark is to be calculated as follows:

1. A cost base will be calculated for each designated credit card scheme by dividing the costs of processing and authorisation described in paragraphs 13(i) and 13(iii) of the Standard The setting of wholesale (‘interchange') fees in the designated credit card schemes in the reference year by the total value of credit card transactions in the reference year.
2. A weighted average of the cost bases in the designated credit card schemes will be calculated. The weights to be used are the shares of the value of credit card transactions of each designated credit card scheme in the value of total credit card transactions in the designated credit card schemes in the reference year.
3. This weighted average will be multiplied by the average value of a Visa Debit card transaction in the reference year, calculated using the data provided to the Reserve Bank of Australia in accordance with paragraph 9, to yield a benchmark expressed as a number of cents per transaction.

15. The Reserve Bank of Australia will calculate the benchmark by 30 September of the relevant year and publish it on its website.

Initial and subsequent benchmarks

16. For the initial benchmark the relevant financial year is 2006/07.
17. The benchmark is to be re-calculated in the financial year 2009/10 and every three years thereafter.

Transparency

18. The administrator of the Visa Debit system must publish the interchange fees applying to Visa Debit transactions on its website.
19. The administrator of the Visa Debit system must certify in writing to the Reserve Bank of Australia, on or before 30 November each year, that interchange fees in the Visa Debit system complied with this Standard over the prior twelve months ending 31 October.

Standard

The ‘Honour All Cards' Rule in the Visa Debit and Visa Credit Card Systems and the ‘No Surcharge' Rule in the Visa Debit System

Objective

The objective of this Standard is to ensure that the rules of the Visa Debit system and the Visa credit card system promote:

1. efficiency; and
2. competition

in the Australian payments system.

Application

1. This Standard is determined under Section 18 of the Payment Systems (Regulation) Act 1998.
2. This Standard applies to the payment system operated within Australia known as Visa Debit, which was designated as a payment system on 23 February 2004, and to the Visa credit card system operated within Australia which was designated as a payment system on 12 April 2001.
3. In this Standard:

4. Each participant in the Visa Debit system and the Visa credit card system must do all things necessary on its part to ensure compliance with this Standard.
5. If any part of this Standard is invalid, the Standard is ineffective only to the extent of such part without invalidating the remaining parts of this Standard.
6. This Standard is to be interpreted:

• in accordance with its objective; and
• by looking beyond form to substance.

7. This Standard comes into force on 1 January 2007.

Merchant pricing

8. Neither the rules of the Scheme, nor any participant in the Visa Debit system, shall prohibit a merchant from charging a Visa Debit cardholder any fee or surcharge for a Visa Debit card transaction.
9. Notwithstanding paragraph 8, an acquirer and a merchant may agree that the amount of any such fee or surcharge charged to a Visa Debit cardholder will be limited to the fees incurred by the merchant in respect of a Visa Debit card transaction.

Honouring cards

10. Neither the rules of the Scheme, nor any participant in the Visa Debit system, or the Visa credit card system, may require a merchant to accept Visa Debit cards as a condition of the merchant accepting Visa credit cards. Likewise, neither the rules of the Scheme, nor any participant in the Visa Debit system or the Visa credit card system, may require a merchant to accept Visa credit cards as a condition of the merchant accepting Visa Debit cards.

Transparency

1. All Visa Debit cards issued after 1 January 2007 must be visually identified as debit cards. By 31 December 2009, all Visa Debit cards on issue must be visually identified as Visa Debit cards.
2. From 1 January 2007, all Visa Debit cards issued in Australia must be issued with a Bank Identification Number (BIN) that allows them to be electronically identified as Visa Debit cards.
3. On request, acquirers must provide to merchants for which they acquire Visa Debit and credit card transactions, BINs that would permit the merchant to identify separately Visa Debit and Visa credit card transactions electronically.
4. Each acquirer must notify merchants to which it provides acquiring services of the provisions of this Standard. This requirement must be met by 31 December 2007.