Review of the Regulatory Framework for the EFTPOS System: Consultation on Options for Reform – June 2012 1. Introduction

The Payments System Board (the Board) announced in September 2011 that it would undertake a review of the regulatory framework for the EFTPOS system. The regulatory framework includes: the Designation of the EFTPOS system, Designation No 2 of 2004; the Standard, The Setting of Interchange Fees in the EFTPOS System (interchange fees Standard); and the Access Regime for the EFTPOS System (Access Regime). The industry's EFTPOS Access Code (Access Code) also plays an important role in determining the competitive environment for the system.

The review is necessary because of industry developments in recent years. In particular, much of the current regulatory framework was put in place prior to the establishment of the new management structure for the EFTPOS system under EFTPOS Payments Australia Limited (EPAL). The framework, therefore, did not anticipate the changed governance arrangements for the EFTPOS system or the possibility of a change in the structure of interchange fees. It also did not anticipate the move to new industry network arrangements under the Community of Interest Network (COIN). The aim of the review is, therefore, to ensure that regulation of the EFTPOS system continues to support competition and efficiency in the payments system as a whole, in light of the significant changes to the governance and architecture of the EFTPOS system.

This consultation paper has two aims. First, the paper discusses the new form of designation for the EFTPOS system. Based on the views expressed in consultation, the Board has concluded that the new form of designation should be narrow in scope, defining the EFTPOS system based on EPAL's Scheme Rules. It should be noted that this does not preclude debit card transactions occurring outside EPAL's Scheme Rules; it means that any rights or restrictions flowing from regulation under the Payment Systems (Regulation) Act 1998 apply only to the system governed by EPAL. Second, the paper forms the basis for consultation on the options for the future regulatory framework for the EFTPOS system. In light of recent industry developments, the Board is seeking views on various issues, including whether and how the provisions of the existing Access Regime and interchange fees Standard should be incorporated into a new access regime and standard for the newly designated EFTPOS system. The Board is also seeking views on managing the transition to the new regulatory framework in a manner that takes account of the interests of all participants.

Section 2 of the paper provides background on the current regulatory framework for the EFTPOS system and explains the recent developments that have led to the current review. Section 3 discusses the views expressed in consultation on the new form of designation for the EFTPOS system and the Board's decision on a new designation. Sections 4 and 5 look at recent industry developments in terms of the continued need for an access regime and interchange fees standard for the EFTPOS system, present various options for reform and indicate the Board's preliminary views. Section 6 provides details of the next steps in the process.