A Revised Interchange Standard for the EFTPOS System – November 2009 1. Introduction

The Payments System Board has held long-standing concerns about the competitive effects of different interchange fees and governance arrangements in the EFTPOS and scheme debit systems. Initially, it addressed these concerns by regulating to narrow the interchange fee differential between the two systems. But in its review of the card payment reforms, completed in September 2008, the Board indicated that it intended to further address its concerns by either removing regulation on both systems or, in the event regulation was maintained, making the regulations consistent. The adoption of the former option was contingent on the Board forming a view that governance arrangements and market structures were such that vigorous competition between the systems could be generated and maintained.

In August 2009, the Board decided to defer its decision on future regulation, and maintain the existing regulations so that it could gather more information on the likely evolution of the competitive landscape. A significant factor in this decision was that the new governance arrangements for the EFTPOS system had only recently been established and had not had sufficient time to demonstrate their effectiveness. But this deferral meant that the difference in regulatory treatment of the debit systems would remain for the time being and, in particular, that EFTPOS interchange fees would remain more tightly constrained than scheme debit interchange fees. The Board was of the view that this could limit the extent to which the newly established EFTPOS scheme could compete with the scheme debit systems prior to any final decision on the regulatory landscape. It therefore decided to consult on the possibility of changing the regulation of EFTPOS interchange fees to be consistent with that applying to scheme debit.

This document sets out the Board's analysis and conclusions on this issue. Section 2 sets out the Payments System Board's mandate and objectives. Section 3 discusses the background to the current interchange regulations on debit cards and the reason why the Board decided to consider a change to the EFTPOS interchange Standard. Section 4 sets out the proposed EFTPOS interchange Standard and Section 5 summarises the consultation. Section 6 sets out the options considered by the Board and its assessment of the options. Section 7 concludes.