Proposed Changes to the Credit Card Interchange Standard:
A Consultation Document – July 2005
3. Consultation

In response to its call for submissions, the Bank received nine submissions. While only seven of these were received by the closing date, all submissions were considered, and all are available on the Bank's website. In addition, the Bank provided an opportunity to those who had made submissions to discuss their submissions with the Bank; five parties took up this opportunity.

One group (the majority) argued that the Bank should change the standard to require a common cost-based benchmark for all designated schemes.[1] These parties argued that the current differences in interchange fees, particularly the difference of two basis points in Visa's and MasterCard's fees, is a factor in the marketplace.

Amongst the submissions supporting a common benchmark fee there were two broad approaches advocated.

The Australian Merchant Payments Forum (AMPF) argued that a single benchmark should be established based on the costs of the lowest-cost scheme. Other submissions did not support this approach on the basis that it would result in Bankcard's costs providing the benchmark. They argued that Bankcard's costs reflect those of a small, domestic scheme and are not representative of the costs of credit card issuing more generally. Visa, in particular, argued that Bankcard's costs are not reflective of a growing dynamic network and that if the Bank were to adopt such a benchmark, the capacity of schemes to develop new products for the benefit of society would be reduced.

The second, and more widely supported approach was to base a common benchmark on the weighted-average costs across the schemes. Some submissions argued that Bankcard should be excluded from this weighted-average on the basis that its costs are not representative of the industry as a whole.

In contrast to the submissions supporting a common benchmark, MasterCard and the Commonwealth Bank argued that the credit card interchange standard should not be changed.

MasterCard argued that instituting a common benchmark would eliminate the remaining competition in the setting of interchange fees. It also argued that competition between issuers with respect to product offerings, and between schemes with respect to scheme fees, would be diminished. MasterCard also argued that a common benchmark would result in under compensation of issuers in the higher-cost scheme and over compensation of those in the lower-cost scheme.

The Commonwealth Bank argued that if a cost-based methodology is to apply, it should reflect actual costs incurred; an outcome which would not be achieved by setting a common benchmark. It also argued that facilitating different interchange fees between schemes is pro-competitive. The Commonwealth Bank also noted that, in its view, the independent experts appointed by the Schemes to calculate their benchmarks, play an important role and it would be undesirable to abolish this role.

Westpac indicated that it was not convinced of the need for change but, if the Bank were to institute such a change, it would support a common benchmark determined by costs averaged across the three schemes.

The issue of timing was also addressed in consultation. There was general agreement that, should a change be made, it should be implemented at the same time as the benchmarks are recalculated in 2006. There was also a view that any change should be announced as soon as possible so that participants could take it into account in their planning.


See submissions by ANZ, the Australian Merchant Payments Forum, CreditLink, CUSCAL, National Australia Bank and Visa. [1]