Policy Options | Review of Card System Access Regimes: A Consultation Document May 2013 | Consultations

Review of Card System Access Regimes: A Consultation Document – May 2013 3. Policy Options

In light of the issues discussed above, the Bank has identified three broad policy options – varying the access regimes to expand eligibility to a larger range of entities; revoking the access regimes; and maintaining the status quo. It should be noted that regardless of the option chosen, the Banking Regulations 1966 would also have implications for whether entities that are not ADIs could participate in credit card systems as card issuers or acquirers.

Option 1: Vary the Access Regimes to Widen Eligibility for Participation

Under this option, the access regimes would be retained but varied to widen the range of entities eligible to participate in the MasterCard and Visa schemes. This option thus recognises both the continuing relevance of the original rationale for imposing the access regimes and the desirability of expanding access in light of recent developments.

Several approaches are possible under this option. The access regimes could be modified in a prescriptive way to provide access for a specified class of entities that is broader than ADIs. For example, they could either include all entities conducting banking business in Australia, or those with an Australian credit licence (ACL). The first would allow the Reserve Bank (which is permitted to conduct banking business under legislation but is not an ADI) to participate in the schemes, but would not extend eligibility to any other prospective entrant that is not currently eligible. By contrast, using holders of an ACL as a threshold could allow a wider set of participants to become eligible. However, given the fact that the ACL regime relates to ‘consumer credit’, this approach may not be a means of expanding access to prospective participants focused on business-to-business payments or solely on acquiring. In addition, in the absence of other criteria, merely being an ACL holder may not be sufficient in terms of the management of potential risks arising from participation.

The class of eligible entities could also be expanded by specifying the nature of activities undertaken (beyond ‘banking business’) rather than by the institutional status of these entities. New eligibility thresholds could be created to cater for different classes of prospective participants, targeted to risks they may bring to the system.

Another approach is to vary the access regimes to specify that ADIs are the narrowest class of participants that must be eligible for participation, but that entities that are not ADIs may also participate. This would have the advantage of maintaining an obligation on card schemes to allow at least the entities currently eligible for participation to continue being eligible, while allowing the schemes themselves to expand eligibility beyond this minimum.

While Option 1 has a number of benefits, it raises the possibility that ADIs would be competing in the same business activities as non-ADIs that are subject to less onerous regulatory requirements. This may result in an uneven playing field or encourage regulatory arbitrage. The scope for such arbitrage would, however, be limited to the narrow range of activities that such non-ADIs may be able to undertake.

Option 2: Revoke the Access Regimes

Enabling the schemes themselves to determine eligibility for access may be appropriate if there are minimal risks to the payments system as a whole and no adverse competition or efficiency issues from doing so. This would represent the most straightforward approach to widen access.

Two general approaches are possible if the access regimes were to be revoked. Voluntary undertakings on access – including some specific criteria for eligibility – could be obtained from MasterCard and Visa, or the schemes could be allowed to determine their own participation criteria without influence from the Bank. Both approaches could offer greater flexibility than the more prescriptive approaches under Option 1. It should be noted that greater flexibility is currently built into the scheme rules, extending eligibility in some jurisdictions.^[15]

With either of the approaches under Option 2, the Board would need to be satisfied that any additional flexibility provided by removing the access regimes would be in the public interest. In particular, the Board would need to be confident that barriers to entry similar to those that existed prior to regulatory action by the Bank and APRA would not re-emerge; the Bank notes that at least one current participant in the MasterCard and Visa systems would not have gained entry without the access regimes. However, both schemes have indicated a willingness to admit a wider range of members than previously, subject to certain criteria. The Board would also have to be mindful of a risk at the other extreme – namely that the schemes, in competing for business, may weaken eligibility criteria too far and potentially compromise the financial safety of the systems.

One possible way to address these concerns would be for the Board to make an in-principle decision to remove the access regime for each card scheme only when the scheme has put in place, and published, a satisfactory set of access criteria. Alternatively, the Bank may choose to seek a greater level of assurance that the schemes will adopt a satisfactory approach to access on an ongoing basis through voluntary undertakings.

A relevant consideration under Option 2 would be that – even if suitable undertakings were provided to the Bank – the private remedies currently provided by sections 16 and 17 of the Payment Systems (Regulation) Act 1998 would cease to be available. Specifically, a person denied access would no longer have a statutory entitlement to ask the Bank to give a direction, and no longer have the right to apply to the Federal Court for an order for compliance and/or compensation.

Option 3: Maintain the Status Quo

A third option, which is required to be considered under the Commonwealth's regulatory guidelines, is to maintain the access regimes in their current form. This would be appropriate if it were decided that the existing access regimes continue to strike a suitable balance between the capacity for scheme operators and participants to manage risks and the ability for prospective participants to join.

One benefit of the status quo is that the criteria for eligibility are clear, objective and non-discriminatory. As discussed in Section 2, however, the access regimes in their current form may no longer be fulfilling their original objectives. In particular, new narrow business models are emerging which might not warrant prudential supervision as an ADI, which would nonetheless be required under the current regime. At the same time, the card schemes appear to be willing to consider admitting the entities operating with these models without ADI status. In combination, this suggests that the access regimes may no longer be lowering the barriers to entry.

There are also costs for APRA relating to processing enquiries and applications from potential entrants wishing to become ADIs and the ongoing supervision of these entities if authorised. These costs have the potential to increase with the number of prospective scheme participants. Depending on the nature of risks to the financial system raised by these entities, it is possible that the benefits of the current level of prudential supervision required by the access regimes (in conjunction with banking legislation) may no longer outweigh the costs.

Moreover, this option has implications for the competitive position of the MasterCard and Visa schemes. Option 3 would mean that – should it decide to become a direct acquirer of card payments in order to offer improved services to its customers – the Bank could seek to become a member of the eftpos scheme but would not be in a position to do so for the competing MasterCard and Visa schemes.

Footnote

For instance, in some circumstances non-prudentially supervised entities may be admitted. [15]