Media Release Payments System Issues

At its recent meeting, the Payments System Board considered a number of issues including the reform of the ATM system, disclosure arrangements for equities securities lending, the oversight of overseas central counterparties, and restrictions imposed on merchants by PayPal.

1. Reform of the ATM System

The Bank is today releasing an Access Regime that will support the industry-based reforms to the ATM system. These reforms, which will come into effect on 3 March 2009, will:

  • make the cost of cash withdrawals more transparent to cardholders and place downward pressure on the cost of ATM withdrawals;
  • help to ensure continued widespread availability of ATMs by creating incentives to deploy them in a wide variety of locations, providing consumers with choice and convenience;
  • promote competition between financial institutions; and
  • make access less complicated for new entrants, and therefore strengthen competition.

As is the case currently, most banks will not charge their customers for use of their own ATMs. Many small financial institutions have also entered into arrangements with larger networks to provide fee-free access to ATMs for their customers. Furthermore, financial institutions may choose to rebate their customers for any charges levied by ATM owners.

The Board emphasises that the reforms are designed to make the pricing model for ATMs more transparent and responsive to competitive forces. It considers the continuation of foreign fees to be unjustified and against the spirit of the reforms, particularly given that most banks charge a monthly account-keeping fee and that the cost to a bank of its customers using another institution's ATM is very small. In the Board's view, there should be no foreign fees.

The final Access Regime is similar to that released for consultation in December 2008. It 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 specific circumstances. In response to the consultation process, the Access Regime now 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 this is in the public interest. The reasoning behind the final form of the Access Regime is contained in the accompanying document An Access Regime for the ATM System.

The Bank will be monitoring developments in foreign fees and direct charges over coming months and will report publicly on developments.

2. Disclosure of Equities Securities Lending

Over the past year the Bank has been working with participants in the equities securities lending market to improve transparency. As a result of this work, in October 2008 the Bank released a Consultation Document setting out a proposed variation to the Bank's Financial Stability Standard for Securities Settlement Facilities to require greater disclosure by the ASX. The Board is proceeding with this variation, although following the latest round of consultation it has made some minor changes to the originally proposed drafting. The details are set out in the accompanying document Disclosure of Equities Securities Lending.

Key features of the new disclosure regime include the following:

  • ASX will require all transactions related to securities loans to be ‘tagged’ when they are submitted for settlement. This will be implemented in early October 2009, after the required system changes have been made;
  • participants in the settlement facility will be required to report outstanding securities borrowed and loaned directly to ASX; and
  • ASX will publish data on securities loan transactions and the stock of loans outstanding on a daily basis.

There will be a phased approach to implementation of the direct reporting requirement. A pilot will commence at the end of April, with full implementation by the end of December 2009. During the pilot phase the Bank will work with the industry to encourage those entities that are significant players in the securities lending market, but are not settlement participants, to participate in the reporting arrangements.

3. Overseas Central Counterparties

The Bank is also today releasing revised arrangements for the regulation of overseas central counterparties that operate in Australia. These revised arrangements are being given effect through a variation to the Financial Stability Standard for Central Counterparties, with the Bank having released draft changes for consultation in October 2008.

Under the new arrangements, an overseas central counterparty that is subject to a ‘sufficiently equivalent’ overseas regulatory regime, and is able to provide documentary evidence from the overseas regulator that it meets the requirements of that regime, will be exempt from the Standard. Given the important role that central counterparties play in the financial system, the overseas central counterparty will not be permitted to self certify that it has complied with the appropriate regulatory requirements.

Where an overseas central counterparty is not subject to formal assessment against the Standard, it will still be required to provide regular data and information to the Bank. In the Board's view, this regime provides an appropriate balance between ensuring the safety and robustness of central counterparties operating in Australia and avoiding the costs associated with unnecessary regulation.

Consistent with its existing approach with respect to Australian central counterparties, the Reserve Bank will publish an annual assessment of any overseas facilities operating in Australia, including of the facilities' obligation to address systemic risk. In addition, the Reserve Bank will work with ASIC to establish guidance on how ‘sufficient equivalence’ of an overseas regulatory regime will be assessed. This process, to be undertaken over coming months, will involve consultation with the industry.

4. PayPal's Merchant Restrictions

As indicated in earlier Media Releases, the Board has recently been considering PayPal's and eBay's rules that prohibit merchants from surcharging customers for the use of PayPal and from discouraging the use of PayPal.

The Board's view is that no-surcharge rules can limit merchant choice and competition and can be detrimental to the efficiency of the payments system as a whole, particularly where merchants' ability to decline acceptance of a particular payment instrument is constrained. Notwithstanding this view, PayPal is a relatively small player in the online market-outside of eBay, most merchants are able to decline acceptance of PayPal if the benefits of accepting it do not outweigh the costs of the restrictions. At this time, therefore, the Board is not convinced that the benefits of imposing regulation to remove the rule would outweigh the costs.

This assessment may change over time, particularly if the PayPal system grows significantly. PayPal has indicated to the Bank that it accepts that if it were to increase in size substantially, its no-surcharge rule would need to be removed for consistency with other payment systems. It has also indicated to the Bank that it will not increase its standard published fees for eBay sellers for a period of two years. Looking forward, the Bank will be collecting additional data from PayPal and other on-line payment systems on a regular basis to assist in its monitoring of market developments.

The Board has also considered eBay's rule that mandates acceptance of PayPal by sellers on eBay. In the Board's view this rule, combined with the no-surcharge rule, is undesirable and limits competition between payment systems. While eBay itself is not a payment system, and thus falls outside the Board's regulatory powers, the Bank encourages eBay to reconsider its policies in this area.

Finally, the Board has been assured that eBay and PayPal's current ‘no discouragement’ rules do not prevent sellers from expressing a preference for an alternative payment system. It will re-examine this issue if it becomes apparent that the ‘no discouragement’ policies are being implemented in such a way as to prevent sellers from exercising choice.


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

Media Office
Information Department
Reserve Bank of Australia

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033