The Reserve Bank of Australia has proposed sweeping reforms to the operation of credit card schemes across the country after a two-year investigation into alleged anti-competitive industry practices.
Over the past two years, the Reserve Bank has conducted a full review of credit card schemes across the country, hearing submissions from all the major participants - the credit card schemes, the banks and other deposit-taking institutions, consumers, retailers and small business.
Ian Macfarlane, governor of the Reserve Bank, says: "The Reserve Bank has weighed up the views and come to a judgment that some of the main restrictions imposed by the credit card schemes do not serve the public interest."
The consultation document concludes that the cost to the community of the credit card network is higher than it would be if more competitive conditions prevailed. As a result, the bank has proposed a series of reform measures:
* an objective, transparent and cost-based methodology for determining wholesale ("interchange") fees - the fees paid to card issuers by financial institutions which provide services to merchants, whenever merchants accept credit cards for payment;
* the end of the restriction imposed by credit card schemes which prevents merchants from recovering from cardholders the costs of accepting credit cards; and
* the end of the restriction which prevents the entry of new players into the credit card schemes. Under the proposed reforms, specialist credit card service providers, as long as they were supervised by the Australian Prudential Regulation Authority, would be eligible to enter the credit card schemes.
Macfarlane continues: "Though the consultation document does not specifically address credit card interest rates, the proposed opening of the credit card market to new participants offers the prospect of genuine competition in this form of lending. It is worth recalling that it was the entry of specialist mortgage originators that spurred competition in the residential mortgage market."
The proposed reform measures will apply to the credit card schemes operated in Australia by Bankcard, MasterCard and Visa, which were formally "designated" by the Reserve Bank as payment systems subject to its regulation in April 2001.
The Reserve Bank is issuing its proposed reform measures in draft form, as required by the Payment Systems (Regulation) Act 1998. Interested parties have an opportunity to comment on the draft measures before they are finalised.