Reform of Australia's Payments System: Issues for the 2007/08 Review – May 2007 List of tables

Table 1: Payments System Reforms – as at May 2007

Table 2: Regulatory Developments Overseas – as at May 2007

Table 3: Credit Card Interchange Fees

Table 4: Scheme Debit Card Interchange Fees

Table 5: Credit Card Rewards Programs

Table 1: Payments System Reforms – as at May 2007
Standards
Interchange fees
Credit cards Weighted-average interchange fee in both the MasterCard and Visa schemes must not exceed 0.50 per cent of the value of transactions.
MasterCard and Visa must publish their actual credit card interchange fees.
Scheme debit The weighted-average interchange fee for Visa Debit transactions must not exceed 12 cents per transaction.
Visa must publish its actual debit card interchange fees.
EFTPOS EFTPOS interchange fees for transactions that do not involve a cash‑out component must be between 4 and 5 cents per transaction.
Merchant restrictions
Honour-all-cards Visa is not permitted to require a merchant to accept Visa Debit cards as a condition of accepting Visa credit cards, or vice versa.
Visa Debit cards must be visually and electronically identifiable as debit cards, and acquirers must provide merchants with information required to electronically distinguish Visa Debit and Visa credit card transactions.
Surcharges The card schemes must not prohibit a merchant from imposing a surcharge for MasterCard or Visa credit card transactions, or for Visa Debit card transactions.
Access regimes
Credit cards and scheme debit Schemes must treat applications for membership from Specialist Credit Card Institutions on the same basis as those from traditional authorised deposit-taking institutions (ADIs).
A participant in the MasterCard or Visa credit card schemes, or the Visa Debit system, must not be penalised by the scheme based on the level of its card issuing activity relative to its acquiring activity, or vice versa.
Schemes must make available the criteria for assessing applications to participate in the MasterCard credit card system, or the Visa credit or debit card systems. The schemes must: assess applications in a timely manner; provide applicants with an estimate of the time it will take to assess an application; and provide reasons for rejected applications.
EFTPOS The price of establishing a standard direct connection with another participant must not exceed a benchmark published by the Reserve Bank, currently $78,000 (ex GST).
An existing acquirer (issuer) cannot require a new issuer (acquirer) to pay (accept) a less favourable interchange fee than any other issuer (acquirer) connected to the acquirer (issuer).
Voluntary undertakings
American Express and Diners Club American Express and Diners Club have provided the Bank with written undertakings to remove restrictions in their credit and/or charge card schemes preventing merchants from charging any fee or surcharge for the use of a card.
American Express American Express has provided the Bank with a commitment to modify provisions in its merchant contracts that would otherwise prevent a merchant from ‘steering’ a customer's choice of payment instrument. Also, in the event that American Express introduces a debit card in Australia, the merchant agreements and pricing for that product will be separate to those for credit and charge cards.
MasterCard MasterCard has provided the Bank with a written undertaking to voluntarily comply with the Visa Debit interchange Standard and the honour all cards Standard as they apply to credit and debit card transactions, as well as the Standard on surcharging as it applies to debit card transactions.
Other
EFTPOS Access Code Under the EFTPOS Access Code developed by the Australian Payments Clearing Association, new and existing EFTPOS participants have specific rights to establish direct connections with other participants within a set time frame.
Scheme data Since August 2005 the Bank has published aggregated data on the schemes’ merchant fees and market shares of transactions.
Table 2: Regulatory Developments Overseas – as at May 2007
Interchange Fees
European Union 2002: The European Commission (EC) reached agreement with Visa to reduce its cross-border interchange fees by December 2007. An investigation into MasterCard's interchange fees is ongoing.
Spain 2005: Authorisation of the interchange fee arrangements of the Spanish card schemes denied by the Spanish Competition Tribunal.
Agreement reached between the Spanish card networks and merchants, co-ordinated by the Spanish Ministry of Industry, Tourism and Trade, for interchange fees to be reduced from a maximum of 2.32% to 1.1% by 2008.
Switzerland 2005: Agreement between the Swiss Competition Commission and credit card issuers to cut interchange fees from 1.65–1.70% to 1.30–1.35%.
United Kingdom 2005: The Office of Fair Trading (OFT) found that MasterCard's interchange fee arrangements were illegal. The finding was appealed but, since MasterCard had changed its method of setting interchange fees, the OFT consented to its decision being set aside by the Competition Appeals Tribunal.
The OFT is continuing to investigate the setting of interchange fees in the MasterCard and Visa schemes.
Israel 2006: Agreement between the banks and the competition authority to reduce interchange fees from 1.25% to 0.875% by 2012.
Mexico 2006: Interchange fee reductions agreed between the Mexican Bankers Association and the Bank of Mexico.
United States 2006: Consolidated litigation by merchants alleging that interchange fees in the MasterCard and Visa schemes breach anti-trust laws.
New Zealand 2007: Proceedings initiated by the New Zealand Commerce Commission against Visa, MasterCard and member institutions of the two schemes, alleging price-fixing in the setting of interchange fees.
Poland 2007: Banks ordered by the Polish Office of Competition and Consumer Protection to discontinue their multilateral interchange arrangements.
Honour-all-cards
United States 2003: A class action led by Wal-Mart was settled resulting in a modification of the honour-all-cards rule, allowing merchants to make separate acceptance decisions between scheme debit cards and credit cards.
Surcharges
United Kingdom 1989: Prohibition on surcharging lifted.
Sweden 1995: Prohibition on surcharging lifted.
Netherlands 1997: Prohibition on surcharging lifted.
Switzerland 2005: Prohibition on surcharging lifted.
Access
Canada 1996: Consent Order issued by the Canadian Competition Bureau requiring that the EFTPOS and ATM network Interac open its membership to non-financial institutions.
United Kingdom 2003: The OFT found that the Visa and MasterCard scheme rules unduly restrict access to the schemes.
European Union 2007: The European Parliament passed the Payment Services Directive which sets minimum access standards for all European payment scheme operators.
Table 3: Credit Card Interchange Fees
Exclusive of GST
Pre-reform 31 Oct 2003 – 31 Oct 2006 1 Nov 2006 – Present
Category Rate Category Rate Category Rate
MasterCard
Electronic 0.80% Electronic 0.46% Consumer Electronic 0.46%
Standard 1.20% Standard 0.62% Consumer Standard 0.30%
        Premium 0.90%
    Commercial 1.12% Commercial 1.12%
    Benchmark 0.55% Benchmark 0.50%
Visa
        Consumer Electronic 0.40%
Electronic 0.80% Electronic 0.44% Consumer Chip 0.50%
        Government & Utility: Electronic 30.0 ¢
Standard 1.20% Standard 0.60% Standard 0.55%
Government & Utility: Standard 74.0 ¢
        Premium 0.90%
        Premium Chip 1.00%
        Micropayment (<$5) 2.5 ¢
        Charity 0%
    Commercial 1.10% Commercial 1.15%
    Benchmark 0.53% Benchmark 0.50%

Sources: MasterCard and Visa websites; RBA.
Table 4: Scheme Debit Card Interchange Fees
Exclusive of GST
Pre-reform 25 Nov 2005 – 31 Oct 2006 1 Nov 2006 – Present
Category Rate Category Rate Category Rate
MasterCard
Electronic n.a. Electronic 0.46% Consumer Electronic 10.0 ¢
Standard n.a. Standard 0.62% Consumer Standard 24.5 ¢
    Benchmark 0.55% Benchmark 12.0 ¢
Pre-reform 31 Oct 2003 – 31 Oct 2006 1 Nov 2006 – Present
Category Rate Category Rate Category Rate
Visa
        Consumer Electronic 8.0 ¢
Electronic 0.80% Electronic 0.44% Government & Utility: Electronic 8.0 ¢
        Electronic Incentive 4.0 ¢
Standard 1.20% Standard 0.60% Standard 0.31%
        Government & Utility: Standard 37.0 ¢
        Micropayment (<$5) 2.5 ¢
        Charity 0%
    Benchmark 0.53% Benchmark 12.0 ¢

Sources: MasterCard and Visa websites; RBA.
Table 5: Credit Card Rewards Programs
Four major banks
Average spending required
for $100 voucher 		Benefit to cardholder as a
proportion of spending (bp)
2003 12,400 81
2004 14,400 69
2005 15,100 66
2006 16,000 63
2007 16,200 62

Sources: Banks websites, ANZ Telstra Rewards Visa card, Commonwealth Bank MasterCard Awards card, National Australia Bank Visa Gold card, Westpac Altitude MasterCard.