Media Release Payments System Issues
Operational Incidents in Retail Payments Systems
At its 16 November meeting, the Payments System Board approved the release of a report setting out the Board's conclusions from an informal consultation on operational incidents in retail payments systems. This consultation was announced in a Media Release on 20 February, which also announced that the Bank would be formalising a requirement for RITS members to report significant retail operational incidents.
The Board has concluded that at present there is no need for a regulatory response to operational incidents in this sector. In the Board's view, senior management of individual institutions are primarily responsible for improving operational resilience of their organisations. Accordingly, it is proposed that at least for the time being the Bank's role be limited to monitoring retail operational incidents and collecting data on them. These data could be used to identify industry trends and could also form the basis for disclosure of aggregate data to facilitate performance benchmarking by payments system participants.
During the informal consultation process, Bank staff met with 15 interested parties, including the four major banks. Discussions spanned a range of areas, including: sources of vulnerability; existing controls, safeguards and contingencies; change management; and plans for upgrade and enhancement of supporting technology. The report released today summarises the key learning points from the consultation, and notes the initiatives that are in train across the industry to enhance operational resilience and to refresh the information technology supporting banks' retail operations.
Review of the Regulatory Framework for the EFTPOS System
The Payments System Board has concluded its review of the regulatory framework for the EFTPOS system. It has decided to move the regulation of bilaterally negotiated EFTPOS interchange fees to a basis that is consistent with other EFTPOS interchange fees and those of the international debit schemes. Under current benchmarks, this means that bilateral interchange fees can be up to 12 cents paid to the issuer and any amount paid to the acquirer. The Board has also made an in-principle decision to revoke the existing Access Regime for the EFTPOS system if satisfactory access arrangements are put in place by eftpos Payments Australia Limited (ePAL). These changes are intended to enhance competition between EFTPOS and the international debit schemes by placing them on a more consistent regulatory footing.
The Board initiated the review of the EFTPOS regulatory framework in early 2012 in order to ensure that regulation continues to meet its objectives in light of changes that have occurred in the system in recent years. Those changes include a shift from a system characterised by bilateral agreements between participants, to one that is centrally managed by ePAL. In recognition of ePAL's capacity to set interchange fees in the interests of the system, in 2009 the Board moved multilateral EFTPOS interchange fees (those set by ePAL itself, previously constrained by regulation to between 4 and 5 cents, paid to the acquirer) to the same 12 cent cap as applies to the international debit schemes. Now that most participants have adopted multilateral fees, the Board has decided that it is appropriate for bilaterally negotiated fees also to be subject to a similar cap. This change will take effect from 1 July 2013 through the imposition of a new standard.
The Access Regime for the EFTPOS system was also aimed at addressing issues largely arising from the bilateral nature of the system. It contains ‘no-discrimination’ provisions relating to the bilateral negotiation of interchange fees and a cap on charges that can be levied on a new entrant for the establishment of a connection to an existing EFTPOS participant. The Board has concluded that ‘no-discrimination’ provisions are no longer necessary given that new entrants can access the multilateral interchange fees set by ePAL. It is also prepared to remove the connection charge cap when it is satisfied that ePAL has in place suitable access arrangements.
These reforms and their rationale are discussed in more detail in the accompanying Regulation Impact Statement.