Transcript of Question & Answer Session Remarks to APCA's Australian Payments 2015 Conference

My read, and I’m interested to hear your comments just at the end there, my read of the FSI response from the Government was essentially that they were letting the RBA off the hook a little bit on surcharging in the sense that it is so hard to police and enforce compliance of and going to solve that with a statutory regime, but what you’ve said indicates that actually it’s going to be more of a collaborative process amongst the government. Did you want to comment a little bit more on that?

The right to surcharge is something that contributes to holding down payment costs and clearly by holding down payment costs, like any other input cost to businesses, you contribute to keeping downward pressure on the cost of goods and services to consumers. Now as it turns out many merchants choose not to surcharge on any payment method, but the ones that do surcharge cards are typically the ones that face higher-than-average payment costs because they get a lot of the expensive payment cards, for example the high rewards cards, and typically those merchants don’t surcharge excessively. But certainly there are a few areas where merchants are surcharging excessively; I’m certainly not going to defend those firms. Indeed the Bank said in its original submission to the FSI in March 2014 that excessive surcharging was something we would be looking into and that we would be considering if further action by the Bank, the ACCC or ASIC was appropriate. It was difficult for the Bank to do anything more while the FSI was underway, but once the FSI report was out, we put out our Issues Paper where excessive surcharging was one of the main issues. The Government has now said that the Bank should complete its work on the review, that the Bank will come up with a framework to determine what surcharge is appropriate and we’ll then have help from the ACCC in enforcement if that is required. But the Bank has been having discussions with the ACCC and Treasury over a number of months and we are keen to have a more enforceable framework, and if we also have enforcement power from the ACCC then that’s a very good outcome.

Right I’m sure the industry would be heartened to hear as well that there’d be a lot of collaboration with all of the history the RBA already has in the space. Are there some other questions, Lance?

Similar to surcharging, but getting a lot less air time, is the minimum that some merchants put on accepting card payments which is keeping cash in the economy and as we know there are lots of different reasons to accept cash, but a number of those merchants will be using it to hide income or avoid GST. Is there any view in the Bank around those minimums?

I think probably our view here would be that one should give merchants the freedom to accept or not accept the payment methods that make most sense for them and I’m aware that some merchants—there’s the story of the butcher shop (I’m not sure where it is)but which has chosen to not accept cash and only accept cards. And you know providing that’s disclosed—that customers know that that’s their policy— then that’s fine. But I think if merchants are saying “It is too expensive for me to accept cards for low value amounts” the solution is not to say “You must accept cards for low value amounts”, it’s to say “Is it the case that cards are more expensive than they need to be for merchants”. So I suspect that many of the merchants you are talking about are what we’ll call the non-preferred merchants that are not getting the benefits of strategic interchange rates, so that one of the issues that we’re looking at in the review might well help in that respect. But the Bank in general has a neutral view over what form of payment people use and I think our main consideration is to make sure that there are not restrictive rules where particular parties in the payment system use their market power to impose rules on end users.

Alright perhaps time for one more question. John Kavanagh.

In its final report the FSI actually laid out a solution for how it would regulate surcharging, excessive surcharging the three tiered model, and the government didn’t comment about that yesterday, but in responses to the final report most of those submissions that did comment on it were critical of it, including APCA, and I’m just wondering do you think that that’s the solution that would be followed? Do you have a view about that solution or do you have a view that there’s an alternative way of doing it?

This is something that is going to be considered in the review that we are working on right now. I would share your observation that it’s a fairly complicated framework. I think the preliminary direction that the Bank is looking is to say well the reasonable cost of acceptance is, or the cost of acceptance is, a reasonable framework for thinking about what the allowable surcharge should be. But let’s make sure that it’s defined in a fairly narrow way so that it’s quite observable what the cost of acceptance of a merchant is and then if it’s quite observable as to the merchant’s cost acceptance, it becomes much more apparent when the merchant is surcharging in excess of its cost of acceptance. So that’s my initial reaction as to the sort of direction that the Bank would be heading and I think that’s consistent with the comments made by the Treasurer and the Prime Minister yesterday.

Alright. I’m going to take one more question, is there one down the back there? Yeah Sean.

Right I think the question was could I be given more guidance as to what we think the reasonable cost of acceptance might be across different industries?

I think we probably should think of this as being a merchant-specific thing, that there will be some merchants that have got a very low cost of acceptance and they will probably chose not to surcharge but in the event they did, they could only surcharge at particularly low levels. Merchants that face higher costs of acceptance would be presumably justified in charging higher surcharges, if they chose to surcharge. So I don’t think you’d be looking at it in terms of industry limits—I think it should be based on the costs of particular merchants, their circumstances. But the important thing is to look for a definition of the cost of acceptance that is quite transparent, measurable, and so you end up with a framework that’s enforceable.

All right thank you very much Tony, please join me in thanking Tony.