Media Release Review of Payments System Reforms

The Reserve Bank is today releasing the preliminary conclusions of the 2007/08 review of the payments system reforms undertaken by the Payments System Board.  The Bank is now seeking submissions on these conclusions, before finalising the review later in the year.

In the Board's view, close oversight of retail payment systems remains necessary. In large part this reflects the unusual competitive dynamics that exist in many payment systems. One particular concern is that merchants have difficulty exerting downward pressure on interchange fees, creating the potential for these fees to cause significant distortions in payment patterns. Historically, this difficulty has been compounded by the card schemes imposing rules on merchants that restricted their choices. A lack of transparency and restrictive access arrangements have also hampered competition.

In the Board's view, the reforms over recent years have helped to address these issues, delivering significant benefits to the Australian community. Price signals in the payments system have been strengthened, transparency has been enhanced, access has been improved, and the competitive environment is now more soundly based than it was five years ago.

Looking forward, the Board has considered how best to build on this progress of recent years.

The Board sees no case for the removal of the no-surcharge and honour-all-cards Standards. These Standards prevent the schemes from imposing rules on merchants that reduce competition and distort pricing. Indeed, the Board is proposing further changes to the honour-all-cards Standard to allow merchants even greater choice about which payment instruments they accept.

Similarly, the Board sees no case for the removal of the existing Access Regimes, which have helped promote competition. The Board remains concerned that access arrangements for some payment systems continue to be unnecessarily difficult. It strongly encourages the industry to take further steps to improve these arrangements.

The most difficult issue confronting the Board has been the regulation of interchange fees. The Board has had long-standing concerns that the market forces acting on these fees have the potential to distort payment patterns in Australia. While the changes over recent years have improved the competitive environment, the Board's view is that further changes to improve competition are possible, and that these changes could be implemented by industry, rather than the Reserve Bank. These improvements to the competitive environment include:

  • changes to the EFTPOS system to allow it to compete more effectively with the other card schemes over the longer term;
  • the card schemes allowing merchants the freedom to make independent acceptance decisions about each type of card for which a separate interchange fee applies; and
  • an increase in the transparency of interchange fees and scheme fees.

In the Board's view, efficiency and competition in the payments system are likely to be enhanced by having an EFTPOS system that is innovative and able to compete effectively with the other card schemes. The Board remains concerned that unless the current governance arrangements in the EFTPOS system are improved, the system will have difficulty being an effective competitor over the longer run.

Competition would also be strengthened by allowing merchants to decline some credit cards if they judged the fees to be too high, while still accepting other cards issued by the same scheme. In addition, transparency could be further increased by the schemes publishing their average interchange fees and scheme fees. This would assist in promoting competition and efficiency by providing merchants with more information on which to base negotiations over card acceptance costs.

The improved competitive environment that would result from these changes has the potential to address the Board's concerns about efficiency and competition. Given this, the Board is prepared to step back from the regulation of interchange fees if the changes discussed above are implemented. This would be consistent with the Board's general approach of only using regulation if industry is unable or unwilling to address the Board's concerns.

The Board recognises that there is a possibility that, even with these changes, the competitive dynamics may still not be strong enough to deliver outcomes that promote the efficiency of the overall system. As a result, if interchange fees in the credit card system did rise materially after the regulations were removed, the Board would be prepared to reintroduce interchange regulation.

The Board is proposing that, at its August 2009 meeting, it take stock of progress by industry. If at that time it were satisfied that sufficient progress had been made by industry, it would proceed to remove the interchange regulations. If, however, the Board judged that insufficient progress had been made, its current thinking is that interchange regulation would continue, with average interchange fees on credit cards being reduced from around 0.50 per cent of the transaction value to around 0.30 per cent. In addition, a common interchange fee of around 5¢, paid to the cardholder's financial institution, would be established for the EFTPOS system and the debit card system operated by the international card schemes.

Any new arrangements could be expected to be in place in the first quarter of 2010. Until this time, the current arrangements, with some minor modifications, would remain in place.

Next Steps

The Bank is seeking submissions from interested parties on its analysis and preliminary conclusions. Submissions should be provided by 30 June 2008 and sent to:

Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947


All submissions will be posted on the Bank's website and parties making submissions will have the opportunity to discuss them with the Bank. Following consultation, the Board aims to release a document setting out its final conclusions in late August or early September 2008.


Dr Philip Lowe
Assistant Governor (Financial System)
Reserve Bank of Australia

Phone: +61 2 9551 8500

Mrs Michele Bullock
Head of Payments Policy Department
Reserve Bank of Australia

Phone: +61 2 9551 8700

Manager, Media Office
Information Department
Reserve Bank of Australia

Phone: +61 2 9551 9720
Fax: +61 2 9221 5528