Review of Card System Access Regimes: A Consultation Document – May 2013 4. Discussion
Under sections 14 and 15 of the Payment Systems (Regulation) Act 1998, the Bank may vary or revoke an access regime if the Bank considers it appropriate, having regard to:
- whether varying or revoking the access regime would be in the public interest; and
- the interests of the current participants in the system; and
- the interests of people who, in the future, may want access to the system; and
- any other matters the Reserve Bank considers relevant.
In line with the discussion in the preceding sections, the Bank is seeking views on whether the access regimes in their current form are appropriate. These regimes may no longer be in the public interest as they may be impeding competition and efficiency in the payments system. Prospective participants in the MasterCard and Visa systems that are otherwise financially sound may be discouraged from entry by the requirement to be prudentially supervised in Australia. There is little justification to exclude such prospective participants if they do not introduce additional risks to the payments system; indeed, allowing the current access regimes to remain may limit competition from new entrants, ultimately resulting in less innovation, higher prices and less choice for end users.
However, it is not clear whether the access regimes should be varied or revoked. Any reform should strike a balance between increasing competition in the provision of card services (and thereby increase the efficiency of the payments system) and maintaining the safety of the payments system. Before making any decision, the Board will need to obtain more information on the rules and procedures that the schemes have in place to address the risks arising from participation. It will also need information on any criteria proposed by MasterCard and Visa to assess whether an entity is eligible to apply for access should the Bank's access regimes be revoked.
Notwithstanding the absence of this detailed information, it would appear that specifying ADIs as the narrowest class of entities eligible for participation under amended access regimes (Option 1) or removing the access regimes, with undertakings in their place (Option 2), would address some of the issues outlined in Section 2 while allowing for flexibility to keep pace with potential changes to the nature of participation (e.g. technological change).
These approaches have the advantage of maintaining a degree of objectivity in determining whether an entity is eligible to participate, such that a scheme (or its members) is largely prevented from using entry criteria to discriminate against some prospective participants. At the same time, both approaches would allow the schemes themselves more freedom in forming the criteria for participation (beyond any minimum required by regulation or undertaking) that are best suited to that scheme.
Both approaches would also address the issues of regulatory neutrality outlined in Section 2, should the Bank consider participating in the MasterCard and Visa systems in its capacity as a provider of banking services. This would not pose additional risks to the schemes – indeed, the aggregate risk of any scheme in which the Bank became a participant would likely decline somewhat.
In making a decision on the access regimes, the Board is also mindful of a number of issues. First, a requirement for MasterCard and Visa to publish their criteria for assessing applications for participation should be retained in any varied access regime or undertaking. This would ensure that there is a widely known and objective set of criteria for assessment and discourage arbitrary discrimination among prospective entrants.
Second, any modification to participation in Australia will need to be consistent with the purpose and effect of interchange regulation established by the Bank. For example, ‘virtual cards’ issued for conducting transactions in Australia may need, as a minimum, to incorporate relevant domestic Bank Identification Numbers.
Third, as noted above, a change to the Bank's access regimes will not allow a wider range of entities to participate in the MasterCard and Visa schemes unless there are also changes in the Banking Regulations 1966. As they were developed collaboratively between APRA and the Bank, consideration of the two regulatory regimes cannot be easily separated. While only APRA can decide on its prudential supervision policy, the Bank will work closely with the prudential regulator during the consultation process to ensure that both regulators' aims could be achieved. This may mean a relatively long period between consultation and implementation of the outcome, depending on the nature of the regulatory changes needed.