Reform of the EFTPOS and Visa Debit Systems in Australia:
Final Reforms and Regulation Impact Statement – April 2006 7. Options

In considering possible reforms, the Bank undertook a two-stage process. In the first stage, it considered whether competition and efficiency in the payments system could be improved by way of a regulatory response on the issues of: interchange fees in the EFTPOS and Visa Debit systems; access arrangements in the EFTPOS system; and the honour all cards rule in the Visa system. In the second stage, it considered various options regarding the precise form of regulation.

In terms of considering whether a regulatory response is appropriate in the first place, the Bank assessed three general options, with one of these having a number of sub-options. These three options are:

1. Implementation of the package of reforms broadly as proposed. As set out in Section 5, this option involves:

• a Standard being determined that would reduce interchange fees in the EFTPOS system. Under the draft Standard, these fees would fall from their current average of around 20 cents to around 4 and 5 cents paid to acquirers;
• a Standard being determined that would reduce interchange fees in the Visa Debit system. Under the draft Standard, these fees would fall from an ad valorem fee of around 0.55 per cent of the transaction value to a flat fee of around 15 cents;
• a Standard being determined that would require the Visa system to remove the requirement that merchants that accept Visa credit cards also accept Visa Debit cards; and
• an Access Regime being imposed on the EFTPOS system that would have the effect of capping the price incumbents can charge for new direct connections and limit the ability of incumbents to use negotiations over interchange fees to frustrate entry.

2. Implementation of various elements of the reforms, but not the entire package. The consultation process suggested a number of possibilities. One was to address just the issue of EFTPOS access. A second was to implement the package, except for the Standard relating to interchange fees in the EFTPOS system. And a third was to implement the package, but not prohibit the honour all cards rule in the Visa system.
3. Take no action.

These various options are summarised in Table 2.