Review of Card Payments Regulation Box D: Likely Implications of Regulatory Reforms

In forming its views on a set of reforms to card payments regulation which, in its opinion, are in the public interest, the Board considered the implications for participants in, and end users of, the payments system. This Box summarises the likely effects of the regulatory reforms, considered as a package of measures, on various stakeholders.

Industry participants

  • A change in the nature of competition between three- and four-party card schemes is likely. For example, with issuer fees in companion cards subject to the credit card interchange benchmark, there may be a reduction in companion card issuance.
  • Reductions in the overall level of interchange payments for debit and credit transactions will flow through into falls in interchange revenue to issuers and falls in four-party merchant service fees. Changes to the debit interchange cap could result in higher card acceptance for low-value transactions.
  • A fall in merchant service fees for the four-party schemes is likely to result – as in the Bank's initial reforms – in downward pressure on three-party merchant service fees. Changes to the surcharging standard will make payment costs more transparent to merchants and may result in reduced blending of surcharges, which will also place downward pressure on three-party merchant service fees.
  • Changes to the interchange fee benchmark frameworks and a reduction in merchant service fees will result in less cross-subsidisation/price discrimination between different types of cardholders and consumers, as well as between preferred and non-preferred merchants.
  • The caps on maximum interchange rates will bring down interchange fees on commercial cards issued under four-party schemes, which may result in some reduction in rebates or increased fees on these cards.
  • Smaller card issuers (e.g. credit unions and building societies) do not generally issue high-interchange, high-rewards cards, and so are likely to be much less affected by caps on the highest interchange rates than the large banks; on the other hand, their card portfolios tend to be weighted more to debit (which will see a larger reduction in interchange) than credit cards.
  • Reductions in interchange fees (and, as noted below, the generosity of rewards packages) should reduce the obstacles facing new payment methods in the future.
  • Acquirers will be required to make systems changes to provide annual merchant statements and additional information in monthly statements. Schemes will be required to comply with interchange benchmarks each quarter and to reset their schedules in the event of breaches.


  • Lower merchant service fees can be expected to lead over time to a slightly lower overall level of prices of final goods and services to consumers.
  • There will be fewer instances of excessive surcharging, owing to simpler, more transparent surcharging arrangements and enhanced enforceability (including by the ACCC). It is likely that the changes to the interchange standards, the narrower definition of the cost of acceptance and a reduction in blended surcharging will result in a reduction in the frequency of surcharging on some cards.
  • The reduction in interchange fees, especially the cap on the highest credit card rates, is likely to result in some reduction in the generosity of rewards programs on some premium cards. It is likely, however, that there will be only limited changes to other elements of the credit card package (e.g. interest rates, interest-free periods). Similarly, the reduction in the high percentage debit/prepaid interchange categories may be likely to result in some reduction in rewards generosity for some of the new debit/prepaid rewards cards. There are unlikely to be other material changes to arrangements for transaction accounts.


  • Merchant service fees will fall due to a reduction in interchange payments. There may be additional downward pressure on payment costs to the extent that there is some substitution away from companion cards to lower-cost payment methods.
  • The difference between interchange fees on transactions at preferred and non-preferred (mainly smaller) merchants is expected to narrow significantly. Caps on maximum interchange fees will likely benefit small businesses that currently bear most of the cost of corporate and premium consumer cards. For example, for transactions on the highest interchange cards, small merchants on ‘interchange-plus’ pricing arrangements will see a $1.20 reduction in merchant service fees on a $100 transaction using such a card.
  • Transparency of payment costs for merchants will be enhanced by changes to the surcharging standard and associated disclosure requirements. The improved disclosure of costs will result in greater merchant awareness of the cost of different payment methods.
  • Merchants who currently surcharge for cards will have to ensure that their surcharges do not exceed the cost of acceptance for each payment method. They will have to ensure that any blended surcharges do not result in excessive surcharges for any scheme. Fixed-dollar surcharges will typically be converted to percentage terms.