Reform of Australia's Payments System Executive Summary

Following extensive consultation and analysis over the past year, the Payments System Board has finalised its review of the payments system reforms.

The Board has concluded that the reforms have delivered significant benefits, improving the overall efficiency of Australia's payments system. The Review has considered how best to build on those gains and, in particular, the improvement in the competitive environment that has taken place since the reforms were introduced.

The Board sees no case for allowing the schemes to reimpose restrictive rules on merchants, or for winding back access regimes or the improvements in transparency. The enhanced competitive environment does, however, provide an opportunity to consider stepping back from the regulation of interchange fees, although the Board remains concerned about the strength of the competitive forces acting on these fees. Given these concerns, the Board will only step back from regulation in this area if industry participants take further steps to reduce the risk that interchange fees in the credit card system increase from current levels in the absence of regulation. If such steps are not taken, interchange regulation will continue.

Two broad approaches to addressing the Board's concerns in this area have been identified. The first was suggested in the Preliminary Conclusions. It involves enhancing competition through: changes to the EFTPOS system to improve its ability to compete effectively with the international card schemes; further modifications to the honour-all-cards rules to allow merchants to make separate acceptance decisions for any card for which there is a separate interchange fee; and more transparent scheme fees. The consultation process has not fundamentally altered the Board's views on the benefits of these changes although this document sets out in more detail the Board's thinking in these areas.

The second approach was suggested during the consultation process. It directly addresses the Board's concern about the potential for interchange fees to increase through a commitment by the schemes to limit the weighted average of credit card interchange fees to the current level of 0.5 per cent. If this approach were adopted, the benefits from further modifications to the honour-all-cards rule suggested above would be reduced, and accordingly the Board would not see a need for these changes to be made.

Under both of these approaches, the Board will be seeking greater transparency of scheme fees. It recognises, however, that there are commercial sensitivities about these fees and will be working with the schemes to determine a way in which its requirement for transparency can best be balanced with commercial considerations.

The Board has also concluded that merchants should be permitted to make separate acceptance decisions on pre-paid cards and not be penalised by higher fees for any decision to do so. Further, it is not convinced that allowing schemes to place restrictions on merchants limiting surcharges would improve the efficiency of the system.

If insufficient progress has been made in meeting the Board's concerns by August 2009, interchange regulation would be retained with the Board proposing that the benchmark for credit card interchange fees be reduced to 0.3 per cent as proposed in the Preliminary Conclusions. In the EFTPOS and scheme debit systems, a common approach to setting interchange fees is being proposed, although the schemes would have more flexibility than was suggested in the Preliminary Conclusions. In particular, the Board is proposing that the weighted average of interchange fees be constrained to be between 5 cents paid to the issuer and 5 cents paid to the acquirer. If regulation of interchange fees were to continue, the Board would not require further modifications to the honour-all-cards rule to allow separate acceptance decisions for any card with a separate interchange fee, although it would still seek greater transparency of scheme fees.