RBA proposes new card interchange standard; holds off on ATM reform
28 November 2005 | 2827 views | 0
At its meeting on 22 November 2005, the Payments System Board considered a number of matters, including the interchange standard applying to the designated credit card systems, industry progress in reforming the ATM system, and access arrangements in the EFTPOS system.
Credit Card Interchange Standard
Following a decision of the Board, the Bank is today gazetting a revised Standard to apply to the setting of interchange fees in the designated Bankcard, MasterCard and Visa credit card schemes in Australia. Under the revised Standard, the weighted-average interchange fee in each of these three schemes must be no greater than a common benchmark. This is in contrast to the existing standard in which separate benchmarks apply to each scheme. The common benchmark will apply from 1 November 2006, with the existing scheme-specific benchmarks applying until that time. The Bank has not made any changes to the eligible costs that are included in the benchmark.
This change follows extensive consultation with the industry. Through the consultation process it was evident that issuers of credit cards have an incentive to issue cards under the scheme with the highest interchange fees, even where the differences in fees amongst schemes are quite small. Given that normal competitive forces do not bear on interchange fees in the credit card schemes, the Bank's view is that competition between schemes would be more soundly based by the establishment of a common benchmark to apply to each of the designated credit card schemes. Such a benchmark provides a stronger incentive for schemes to reduce costs than is the case under scheme-specific benchmarks. It also provides a greater incentive for issuers to issue cards under a scheme with lower costs.
Automated Teller Machines (ATMs)
For a number of years now, participants in the ATM industry have been exploring options for reform, including the introduction of a system in which ATM owners would directly charge the user of the ATM, rather than receive an interchange fee. Despite considerable effort, the various parties have been unable to agree on an alternative set of arrangements to those currently in place and, as a result, the industry reform process has stalled. Reflecting this, the Australian Bankers' Association recently wrote to the Bank asking for some guidance on the possible way forward. The Bank has subsequently met with participants in the ATM system and other interested parties to seek their views on both the need for reform and how any reforms might be pursued.
During this consultation process it became clear that support in the banking industry for a broad-based move to direct charging by ATM owners had declined, and that most participants in the industry were still of the view that voluntary reform remained preferable to a regulatory solution. Given this, and its own analysis, the Bank is not proposing to designate the ATM system at this stage, and is not proposing to use its regulatory powers to impose a direct charging regime on the industry.
The Bank remains committed to working with the industry to improve competition and efficiency in the ATM system in Australia. It has today written to the Australian Bankers' Association highlighting two aspects of the current arrangements that should be addressed in further industry work.
The first relates to access to the system. In the Bank's view, current arrangements for access to the ATM system are unnecessarily restrictive, as they are to the EFTPOS system. In the case of EFTPOS, however, the industry has been working on the development of more liberal arrangements, and this work is now almost complete. There is a strong case for a similar liberalisation of access arrangements in the ATM system. As part of the development of more appropriate arrangements, the Bank has also indicated to the Australian Bankers' Association that it sees merit in ensuring that bilateral negotiations over interchange fees cannot be used in a way that adversely affects access or competition. One way of doing this would be the establishment of a common interchange fee in the ATM system, as exists in many other countries.
The second relates to the ability of ATM owners to levy a direct charge if they wish to do so. While the Bank is not proposing to make such charges mandatory, it is of the view that ATM owners should be able to levy such charges if they see a case for doing so. At present, there are some technical impediments to ATM owners levying such charges, and there is a concern amongst some ATM owners that should they do so, their access to the system may be curtailed. In the Bank's view, there is a strong case for the removal of any technical or business restrictions that limit the ability of ATM owners to impose a direct charge.
The EFTPOS System
The Board also considered a number of matters concerning the reform of the EFTPOS system. However, in light of advice that a judgement in the case challenging designation of the system will be delivered on 28 November, the Board has deferred decisions on these matters until it has had the opportunity to review the judgment.