Reform of Australia's Payments System: Issues for the 2007/08 Review – May 2007
I. Timing and Scope of the Review
Review timetable
The release of this paper begins the formal processes of the review. Interested parties
are invited to make submissions by 31 August 2007. All submissions will be
posted on the Bank's website (www.rba.gov.au) and parties making submissions
will have the opportunity to discuss them with the Bank. Submissions should
be sent to:
Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947
SYDNEY NSW 2001
As part of the review process, the Bank will co-host a conference with the Centre
for Business and Public Policy at the Melbourne Business School on 29 November
2007. This conference will bring together academics, practitioners and policy
makers to address a number of key issues regarding the Bank's reforms.
The Bank anticipates releasing its preliminary conclusions – including details
of the general direction the Board is considering – for consultation
in April 2008. If, at the end of that consultation, the Board were to propose
making specific changes to the current standards or access regimes, the draft
changes would be released for public comment. While there is inevitably some
uncertainty as to the exact timing, it is anticipated that any changes to
standards and access regimes would be finalised by the end of 2008.
Scope of the review
The genesis of the review is a commitment the Bank made when it announced the credit
card reforms in 2002. At the time, the Bank said that ‘The [Payments
System] Board will also undertake a major review of credit and debit card
schemes in Australia after five years, updating the findings of the Joint
Study. On the basis of that review, it will consider whether the standards
and access regime for the designated credit card schemes remain appropriate.’
[1]
In a media release on 13 September 2006 the Bank sought views on the content of the
review.[2]
Most submissions called for the review to be broad in nature and to cover
all the Bank's reforms, not just those relating to the credit card system.
The Bank agrees with these submissions and is committed to an open and wide-ranging
review that provides scope for all interested parties to be involved.
The review will not only examine the effects of the reforms to date, but will also
examine how, looking forward, the regulatory regime can best contribute to
competition and efficiency in the Australian payments system. In particular,
the Board is interested in what has changed since the reforms were introduced
and how this might bear on the appropriate regulatory regime in the future.
Reflecting this broad scope, the review will address three interrelated questions:
what have been the effects of the reforms to date?
what is the case for ongoing regulation of interchange fees, access arrangements
and scheme rules, and what are the practical alternatives to the current
regulatory approach? and
if the current regulatory approach is retained, what changes, if any, should be made
to the standards and access regimes?
The review will consider all the reforms to date. These include: the interchange
standards for the credit card, scheme debit and EFTPOS systems; the standards
requiring the removal of the no‑surcharge rule and the modification
of the honour-all-cards rule; the access reforms to the credit and debit card
systems; and the increased transparency of information. The review will also
consider a number of issues that the Board has previously discussed, but where
a regulatory response was not considered appropriate at the time. In particular,
it will include consideration of the payment systems operated by American
Express, Diners Club and BPAY. The review will also consider the ATM system,
although the extent of this consideration will depend upon how the current
industry-based reform process develops over coming months.
In conducting the review the Board will pay particular attention to the effects of
the various reforms on the overall efficiency of Australia's payments
system. The Board has always seen the various reforms as part of a package
and is especially interested in the way the configuration of interchange fees
across the various payment systems influences relative prices for payment
services.
Gathering relevant information
The Bank is conducting two significant studies as inputs to the review.
The first is a study of the resource costs associated with different methods of payment.
The study will update and extend the data on costs collected as part of the
Joint Study in 1999 and
2000.[3]
In addition to the costs of financial institutions, the study will consider
the costs incurred by other participants in the payments system, and will
include consideration of the costs of payments by cash, as well as by credit
cards, scheme debit cards, EFTPOS, cheques, direct entry and BPAY.
This study is being undertaken in close co-operation with financial institutions,
merchants and billers. The ability of many organisations to provide cost data
in a systematic fashion has increased substantially since the Joint Study,
and the Bank appreciates the co-operation it is receiving from the organisations
contributing to this aspect of the review.
The second study is of how various payment methods are used by consumers in different
situations. The Bank is currently working with financial institutions, merchants
and billers, and conducting a survey of consumers to provide more information
on how consumers actually use various payment methods.
It is anticipated the results of both these studies will be available at the time
of the conference in November 2007.
