A Revised Interchange Standard for the EFTPOS System – November 2009 4. Proposed Changes to the EFTPOS Interchange Standard

The Bank published a draft Standard for EFTPOS interchange fees with its 22 September 2009 media release.^[1]

The draft Standard largely replicated the effect of the Visa Debit interchange Standard for the EFTPOS system. It set the benchmark for EFTPOS interchange fees as the benchmark applying to the Visa Debit system under the Visa Debit interchange Standard. The Visa Debit benchmark is published on the Bank's website.

The method by which the draft Standard constrained interchange fees relative to the benchmark varied according to whether interchange fees were bilateral (agreed directly between two participants) or multilateral (applying to any participants in the system in the absence of a bilateral agreement). For multilateral interchange fees, the draft Standard mirrored the requirements of the Visa Debit interchange Standard. On specified compliance dates the weighted average of multilateral interchange fees was required to be no higher than the benchmark. The weighted average was to be calculated by dividing the total interchange revenue that would have been payable had the interchange fees on the compliance dates applied to the transactions processed in the preceding financial year. This would be expressed as cents per transaction. Compliance dates were to be on a specified date each third year or on the date when any multilateral fees were introduced, varied or removed.

For any bilateral interchange fees that remained in the EFTPOS system, the above methodology was unlikely to be workable. The decentralised nature of the bilateral fees would significantly complicate the calculation of a weighted average, but more importantly, no single entity would have control over those fees in a way that would allow them to be adjusted to bring the weighted average into line with the benchmark. For this reason, the draft Standard simply prevented any bilateral fee from exceeding the benchmark, a similar approach to the existing EFTPOS interchange Standard.

One additional element that had to be accommodated by the draft Standard was the possibility that interchange fees could flow either from the acquirer to the issuer or from the issuer to the acquirer – or indeed that interchange fees might be zero. While, at least conceptually, Visa Debit interchange fees could flow from the issuer to the acquirer (and the Visa Debit interchange Standard does not prevent it), in practice this has not occurred and was not contemplated in the drafting of the Visa Debit interchange Standard. In contrast, the draft Standard for EFTPOS interchange fees explicitly contemplated interchange fees that could flow in either direction. It achieved this by defining interchange fees that flow from acquirers to issuers as positive numbers and those that flow from issuers to acquirers as negative numbers. The draft Standard therefore allowed interchange fees to flow to the acquirer because a ‘negative’ fee would by definition be lower than the ‘positive’ benchmark. One implication was that cash-out arrangements, some of which involve the payment of around 20 cents to the acquirer, would be consistent with the draft Standard. As such, there would be no need for an exemption for cash-out transactions and none was included.

Finally, the draft Standard imposed two obligations in relation to transparency of EFTPOS interchange fees. EPAL was required to publish any multilateral interchange fees for the EFTPOS system on its website or make them available in some other way. Acquirers or self-acquirers with bilateral interchange fees in place were required to report to the Reserve Bank once a year on the range of interchange fees received over the preceding year. The Bank would then publish the industry range.

Footnote

The draft Standard was gazetted on 24 September 2009. [1]