Payments System Board Annual Report – 2006 Foreword

The past year has been an eventful one for the Board. Its processes and policies have been under close scrutiny from a number of quarters and it also finalised reforms to Australia's debit card systems.

As noted in last year's Report, in November 2004 a group of retailers challenged the Bank's decision to designate the EFTPOS system under the Payment Systems (Regulation) Act 1998. This was the second major legal challenge to the Bank's exercise of its powers in two years. The retailers argued that the Bank had erred in more than 70 different ways in designating the EFTPOS payment system in September 2004. The judgement in the case, which was handed down in November 2005, found in the Bank's favour on all counts and costs were awarded to the Bank.

When the Government established the Taskforce on Reducing Regulatory Burdens on Business in late 2005, a number of organisations made submissions dealing with the Bank's powers under the Payment Systems (Regulation) Act. One argument was that the legislation should be changed to constrain the Bank's powers, while another was that the Bank's responsibilities for competition and efficiency should be transferred to another authority. It was also argued that the Bank's decisions should be subject to merits review, as well as the current judicial, or procedural, review.

In its response to the report of the Taskforce in August 2006, the Government confirmed that while administrative decisions should be subject to merits review, decisions of the Bank with respect to the payments system are policy decisions and therefore should not be subject to such review. The Government has not proposed any changes to the legislation governing the operation of the Board.

The Bank's payments system reforms have also come under close scrutiny from the House of Representatives Standing Committee on Economics, Finance and Public Administration. In May 2006, the Committee held a special two-day hearing on payments system reforms, taking evidence from the Bank, industry associations, financial institutions, card schemes, consumers, consultants and academics.

The Committee was particularly interested in the reasoning behind the Bank's reforms to the credit card schemes and how the reforms have played out since their introduction in 2003. The Committee recognised that there are a wide range of views about the reforms, but concluded that ‘the benefits of the reform, at this point, outweigh any alleged disadvantages’. The Committee also noted that the Bank planned to conduct a comprehensive review of its reforms beginning in 2007, five years after they were announced. Commenting on a number of suggestions that another body should conduct this review, the Committee concluded that ‘it is appropriate for the RBA to conduct a review of its own reforms. The RBA is well placed to conduct a review given the expertise it has built up throughout the reform process. The Committee does not believe, at this stage, there is a need for an independent review.’

The Committee also noted that there was a consensus that in some areas, technology in the Australian payments system is falling behind that in a number of other countries. The Bank shares the Committee's concerns and is pleased that the industry is exploring ways to ensure that technology and payments services in Australia keep pace with developments abroad.

On the policy front, the Bank finalised reforms to the EFTPOS system and the debit card systems operated by the international card schemes. These reforms complement the earlier reforms to the credit card system. They will see interchange fees fall in both the EFTPOS and scheme debit systems, provide more choice to merchants, and improve access arrangements.

Finally, I would like to thank the members of the Payments System Board for their excellent contributions during my time as Chairman. The Board has played an active role in developing the Bank's policy and has brought both insight and practical experience to the Bank's deliberations. My thanks too to the staff who have worked tirelessly and effectively to deliver a more efficient and stable payments system for all Australians.

IJ Macfarlane

Chairman, Payments System Board
12 September 2006