Reserve Bank of Australia

This Standard replaced the Standards entitled Standard No. 1 The setting of wholesale (‘interchange’) fees, which applied to the Bankcard, MasterCard and Visa systems and were revoked on 1 July 2006. Under the Standard, the weighted average of interchange fees in the Bankcard, MasterCard and Visa schemes could be no higher than a common cost-based benchmark on 1 November 2006 and every three years after.

In April 2006, the Standard was revised to remove references to the Bankcard Scheme which announced its closure with effect from early 2007. A number of other minor technical amendments were also made to clarify the requirements imposed by the Standard on nominated Scheme participants of the MasterCard and Visa systems. None of these revisions altered the fundamental purpose of the Standard which is to cap the weighted average of interchange fees in the MasterCard and Visa credit card systems.

In December 2008, the Standard was varied to allow the Bank to waive or suspend the requirement to recalculate the benchmark for interchange fees.

The Bank first determined a Standard for the setting of interchange fees in the EFTPOS system in July 2006. That Standard required that interchange fees in the EFTPOS payment system, for transactions not involving a cash-out component, be paid by issuers to acquirers, and be set in accordance with an objective benchmark to be recalculated every three years. The Standard required that on 1 November 2006, and every three years after, those interchange fees lie between a cap equal to the benchmark and a floor equal to 80 per cent of this benchmark.

The Standard resulted in a reduction in the average interchange fee paid by issuers to acquirers, on transactions not involving a cash-out component, from around 20 cents to between 4 and 5 cents.

In December 2008, the Standard was varied to allow the Bank to waive or suspend the requirement to recalculate the benchmark for interchange fees. The subsequent exercise of this waiver meant that a recalculation of the benchmark would not be required in November 2009. Rather, the Bank took steps to address what it saw as the possibly detrimental consequences to competition of the difference in regulatory treatment of the scheme debit and EFTPOS systems.

On 24 September 2009, the Bank released a proposal for consultation on a further amendment of the standard to ensure that the regulation of interchange fees in the EFTPOS system was consistent with that for scheme debit. Following consultation, an amended Standard was released in November 2009. The amended Standard (effective 1 January 2010) caps the weighted average of any multilateral interchange fees in the EFTPOS system at the same level as for scheme debit – 12 cents paid to the issuer. It leaves the regulation of bilateral interchange fees unchanged – between 4 and 5 cents paid to the acquirer for purchase transactions.

This Standard requires that on 1 November 2006, and every three years after, the weighted average of interchange fees in the Visa Debit system in Australia, which are paid by acquirers of Visa Debit card transactions in Australia to Visa Debit card issuers, be no higher than a benchmark calculated according to the Standard.

The Standard has resulted in a reduction in the average interchange fee in the Visa Debit system from around 40 cents to an average of around 12 cents from 1 November 2006.

In December 2008, the Standard was varied to allow the Bank to waive or suspend the requirement to recalculate the benchmark for interchange fees.

On 10 December 2008, the Bank designated the ATM system and released a consultation document, setting out a draft Access Regime. Interested parties were invited to provide submissions in response to the draft Access Regime. Participants were also invited to discuss their submissions with the Bank on an individual basis.

Following this consultation process, the Bank released a final Access Regime on 24 February 2009, which sets a cap on the connection cost that can be charged to new entrants to the ATM system and prohibits the charging of interchange fees, except in special circumstances. The Access Regime also includes a prohibition on the charging of fees for establishing direct clearing/settlement arrangements and allows the Bank to exempt certain arrangements from compliance with aspects of the Regime where it is in the public interest. A Regulation Impact Statement was produced as part of the development process.

The Access Regime, together with related industry-based reform, has resulted in significant changes to the pricing of ATM transactions, with customers now being charged directly for ATM withdrawals by the ATM owner and the elimination of ‘foreign’ fees.

The Bank determined this Standard for licensed clearing and settlement facilities in May 2003, in accordance with subsection 827D(1) of the Corporations Act 2001. The Standard was varied in June 2005 to introduce a threshold exemption.

On 24 October 2008, the Bank released a consultation document, containing a proposal to vary one of the measures underpinning the Standard to require that data on equities lending be collected and published. The consultation document sought views from interested parties on the proposed modification. Submissions received were placed on the Bank’s website and those making submissions were offered the opportunity to discuss their views with Bank staff.

Following this consultation process, one of the measures underpinning the Standard was varied (to require that data on equities securities lending be collected and published) in February 2009. A Regulation Impact Statement was produced as part of the development process.

When the measure was varied, the Bank set out a timetable for the phased implementation of its reporting requirements, which would allow for:

• a pilot phase of direct reporting of outstanding on-loan and borrowed positions from end-April to end-December 2009;
• testing of the systems established for real-time tagging prior to full implementation in early October 2009;
• cooperative work between the Bank, ASX and industry participants to identify participants in the Australian securities-lending market that are not settlement participants but have a material presence in the market;
• the ASX to conduct a review of the tagging regime by end-March 2010 and decide whether separate identification of loans and returns is necessary. If a decision were taken to introduce separate loan and return tags, settlement participants would be required to make arrangements to accommodate this by end-September 2010;
• the Bank to also assess, on an on-going, basis, whether the data on on‑loan positions has adequate coverage to ensure that participants in the market are well informed about securities-lending activity.

The Bank determined this Standard for licensed clearing and settlement facilities in May 2003, in accordance with subsection 827D(1) of the Corporations Act 2001.

On 24 October 2008, the Bank released a consultation document containing a proposal to vary the Standard to establish a framework for regulation of overseas central counterparties that are subject to a sufficiently equivalent regulatory regime. The consultation document sought views from interested parties on the proposed modification. Submissions received were placed on the Bank’s website and those making submissions were offered the opportunity to discuss their views with Bank staff.

Following this consultation process, the Standard was varied to clarify oversight arrangements for overseas counterparties licensed under subsection 824B(2) of the Corporations Act 2001, in February 2009.

On 20 May 2009, the Bank released a consultation document seeking views from interested parties on its proposed approach to assessing the sufficient equivalence of an overseas regime. Submissions received were placed on the Bank’s website and those making submissions were offered the opportunity to discuss their views with Bank staff. Following this consultation process, the Bank released Assessing the Sufficient Equivalence of an Overseas Regulatory Regime: Guidance to the Reserve Bank’s Approach on 17 July 2009.

On 28 May 2010, the Reserve Bank announced that it would be undertaking a strategic review of innovation in the Australian payments system. The objective of this project is to identify areas in which innovation in the Australian payments system may be improved through more effective co-operation between stakeholders and regulators. The review will take a medium-term perspective, looking at trends and developments overseas in payment systems and potential gaps in the Australian payments system that might need to be filled through innovation over the next ten years.

As part of the review, the Reserve Bank will carry out a stock take of the Australian payments system and innovation overseas. For this purpose, the Bank will be conducting a second survey on the use of payment instruments by consumers in Australia; the first survey was conducted as part of the review of the payment card reforms in 2007. The Bank will also be drawing on its relationships with other central banks to assess innovative developments in other countries.

The Bank intends that there will be a number of opportunities for consultation with all stakeholders including participants in the payments system, consumers, businesses and government.

The Bank anticipates releasing a consultation document by mid 2011 and finalising its conclusions by the end of 2011.