The Operation of the Interchange Standards: Conclusions Paper 4. Entities Receiving Issuer Payments

4.1 Issues for consultation and proposed options

Currently, the Standards refer to the possibility of Issuer Payments being able to be made to an Acquirer. The Consultation Paper proposed removing this reference to Acquirers from the Standards (Proposal 3). The ‘acquirer’ element of the original definition was intended to maintain a level playing field between four-party schemes and American Express companion card arrangements, where the role of American Express in companion card arrangements could have been interpreted as that of an acquirer. Under the proposed draft Standards the definition of Issuer Payments included payments to an associated entity of a scheme, and thus would encompass payments made to an associated entity that is an acquirer.^[21] Accordingly, the specific reference to Acquirers is no longer required.

4.2 Stakeholder views

There was broad support for this proposal. No submissions objected to the change. One respondent suggested an alternative net compensation framework that included applying the net compensation concept across the cards ‘eco-system’, such that payments to and from Acquirers, merchants and others would be captured. The objectives of this alternative framework included addressing potential cross-subsidisation across issuers and acquirers and strengthening pricing signals to merchants.

American Express noted that its companion card arrangements in Australia had come to an end. In view of this, it suggested that there is no longer any need to have American Express Companion Cards designated as a Scheme and be subject to the Bank's credit card interchange fee standard (Standard No. 1 of 2016) or its merchant pricing standard (Standard No. 3 of 2016), and the compliance and reporting requirements therein.

4.3 Assessment and Conclusion

Given the broad support for Proposal 3 the Bank will vary the Standards to remove references to ‘Acquirer’ from the definition of ‘Issuer Payments’ and to include payments to associated entities of a scheme. The alternative framework suggested by one stakeholder goes beyond the limited scope of this consultation, though it raises issues that would be relevant for the next comprehensive review of the regulatory framework.

In relation to American Express’ submission that the designation of the American Express Companion Card Scheme can be revoked, the Bank expects to consider this issue in the context of its next comprehensive review of card payments regulation. In the interim, where a designated entity expects to have nil reports for an extended period in relation to any requirements of a standard, the Bank would expect to provide a letter to that entity waiving those reporting obligations.

Endnote

Including payments to associated entities of the scheme in the definition of Issuer Payments is intended to enhance consistency across the proposed definitions of Issuer Receipts and Issuer Payments. It also clarifies that the corporate structure of the scheme and its associated entities should not affect whether a particular Benefit is an Issuer Payment or not. [21]