Variation to the MasterCard and Visa Access Regimes: Details-stage
Regulation Impact Statement – March 2014
7. Conclusion

The Bank's view is that Option 2 – varying the Access Regimes and seeking removal of Banking Regulation 4 – would best promote the public interest and balance the interests of current and prospective future participants in the MasterCard and Visa credit card systems and the Visa Debit system.

The status quo is not considered to be in the public interest because the current constraints on access are likely to result in lower levels of competition and efficiency in these systems relative to the other options. The status quo would be to the detriment of parties who may wish to participate in the systems because they will be prevented from entry if they are not ADIs and may be subject to more onerous regulatory requirements than warranted for their business if they seek to become ADIs. This option is likely to reduce competition relative to the other options, resulting in higher costs and reduced service for users of the payments system than might otherwise be the case. Some current participants (SCCIs) may also be subject to higher regulatory imposts than under the other options.

Removing all access regulation has some potential benefits over Option 1 in that, by placing greater discretion in the hands of the schemes to determine eligibility for membership, it provides the potential for expanded entry. This could benefit potential participants, while some existing participants may be subject to reduced regulatory imposts because they would no longer be required to be ADIs. However, the outcomes of this approach are quite uncertain; while there are indications that the schemes are willing to admit a wider range of members, it would be possible for them to deny access to the current SCCIs if they chose. Similarly, while the schemes would be expected to take account of risks to their systems in deciding which new entities to admit, there is no requirement for them to do so. Under this approach, parties denied access would also not have recourse to the provisions of the Payment Systems (Regulation) Act, including the right to ask the Bank to issue a direction or to apply to the Federal Court for a remedy. Overall, the Bank's view is that there are insufficient controls in this approach to be confident of outcomes that properly balance the efficiency and competition benefits of new entrants against the potential risks they bring to the system.

On balance, the Bank's view is that varying the Access Regimes (in conjunction with the removal of Banking Regulation 4) would strike the best balance between the interests of potential and existing participants in the system and would be in the public interest. The schemes would be able to admit new types of entrants, while existing participants that had gained entry under the previous reforms would remain eligible. In the Bank's view, this provides the best prospect of increasing participation in the systems and therefore enhancing competition and efficiency. Consultation identified the scope for at least 11 possible new entrants to scheme participation, with the potential for competition arising from new entry to in turn deliver benefits to consumers and merchants. At the same time, it requires the schemes to establish risk-based criteria for determining eligibility if they choose to expand access, along with criteria for assessing applications. This additional transparency and accountability should help to provide an appropriate balance between competition and risk, while allowing the schemes discretion to tailor membership arrangements to match the risk appetite of the system.

This approach will result in reduced costs of APRA regulation for non-ADIs, while some new costs will result for the schemes. There would be some cost in establishing and publishing eligibility and assessment criteria, along with a modest cost in reporting to the Reserve Bank each year. There are also likely to be costs involved in assessing potential entrants, both initially and on an ongoing basis if accepted, although the schemes argue that they already have robust systems of this type in place. Importantly, the schemes will only expand entry and incur these costs if they consider that they are outweighed by the benefits.