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RBA maintains squeeze on interchange as banks fail in payments reform

26 August 2009  |  7271 views  |  1 Australian Flag

The Reserve Bank of Australia has decided to continue regulating interchange fees on card transactions after concluding that insufficient progress had been made in opening up the domestic payments system to new competition.

The RBA moved in 2003 to cap interchange levels at 0.5% and has called on the industry to strengthen the Eftpos system to compete more effectively with the card schemes and develop an alternative system for online payments.

The RBA indicated in September last year that it would be prepared to step back from interchange regulation, but warned that it was ready to mandate further reductions in fee levels should the industry fail to show progress in payments system reform. The central bank also called on the card schemes to provide voluntary undertakings that credit card interchange fees would not rise above their current levels.

In a statement released Wednesday, the RBA says: "The Board has now concluded that, although progress has been made in both these areas, it is not yet sufficient to warrant a decision to step back from interchange regulation. While the Board noted the establishment of ftpos Payments Australia and the renewed commitment to develop an online payments system (the Mambo project), it does not believe that these initiatives have yet reached the point where they will exert significant competitive pressure on interchange fees, though such a position may well be reached over time. The Board also concluded that the set of undertakings offered by the schemes did not meet its requirements."

In recognition of the progress made so far, the RBA says it will defer consideration of any further reduction in interchange fees, and that it will consider aligning interchange levels in the Eftpos system with those of the card schemes.

The statement concludes: "These matters will remain under review, and the Board is prepared to re-open consideration of the regulations in light of industry developments."

Comments: (1)

A Finextra member
A Finextra member 26 August, 2009, 16:12

I'm not sure I agree with the title of this article "...banks fail in payments reform". Alternative solutions have been available for years and have been rejected by the invisible hand of free markets, yet it is inevitable that change will occur. As an analyst my economic view is that certain "scale markets" work most effectively as an oligopoly at particular points in time, and success should be defined by *potential* access for new entrants. The dynamics of a free-market economy must be allowed to operate naturally, and regulators' most effective action for consumers, merchants, banks and the whole of domestic economies rests in keeping markets open to innovation from fresh competitors. 

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