The Operation of the Interchange Standards: Conclusions Paper 11. Final Variations and Implementation Arrangements

11.1 Variations to the Standards

The conclusions set out in this paper, and summarised in Box E, will be implemented through two Instruments of Variation, one for each Standard. These Instruments will amend and restate:

  • Standard No. 1 of 2016: The Setting of Interchange Fees in the Designated Credit Card Schemes and Net Payments to Issuers
  • Standard No. 2 of 2016: The Setting of Interchange Fees in the Designated Debit and Prepaid Card Schemes and Net Payments to Issuers.

Appendix A sets out how the Standards will read once they have been amended to incorporate the final variations. Documents setting out (i) the drafting changes relative to the version of the varied Standards proposed in the Consultation Paper and (ii) the drafting changes relative to the current Standards, have been published on the Bank's website.[34]. Appendix B contains commentary on the application of accruals accounting to the calculation of net compensation. The expected impact of the variations on compliance costs is set out in Box F.

11.2 Implementation

The Bank expects to register the Instruments of Variations around the beginning of June, with the Variations to come into effect on 1 July 2019.

As set out in section 9, the Bank has adopted flexible transitional arrangements. Under these arrangements for the 2018/19 reporting period a Direct Issuer Participant may choose to comply with the current or varied Standards. It must notify the administrator of the Scheme of its choice (that is, its Transitional Election) by no later than 1 July 2019.

For the 2019/20 reporting period, and all subsequent reporting periods, all Schemes and Direct Issuer Participants must comply with the varied Standards.

Box E: Summary of Conclusions

Proposal 1: Adopt. The Bank's Standards No. 1 and No. 2 of 2016 will be modified to require an accrual approach to be used to allocate Issuer Receipts and Issuer Payments to, or between, reporting periods in a manner consistent with the purpose and intent of the Standards, such that in determining net compensation certifying entities have more scope to draw on information from financial accounts prepared in line with generally accepted Australian accounting principles. Compliance would not be permitted on a cash or quasi-cash basis.

Proposal 2: Adopt. The Bank will clarify that ‘Issuer Payments’ are those payments made by issuers in relation to core services of a scheme.

Proposal 3: Adopt. Remove references to ‘Acquirer’ from the definition of ‘Issuer Payments’ in the Standards.

Proposal 4: Adopt. The Bank will clarify the Standards with the effect that where there is a price at which the supplier is regularly supplying relevant property or services, any discount or deduction from that price that meets the Incentive Test is a benefit to be included in Issuer Receipts.

Proposal 5: Adopt. The Bank will clarify the Standards with the effect that where property or services are supplied and there is not a price at which the supplier is regularly supplying the relevant property or services, the benefit to be included in Issuer Receipts, subject to the Incentive Test, is the amount by which the fair value of the property or services exceeds what is paid for the property or services (and if nothing is paid, then the full fair value is to be included).

Proposal 6: Adopt. The Bank will clarify that the types of entity that an issuer can receive an Issuer Receipt from include associated entities of scheme administrators, drawing on the definition of Associated Entity in the Corporations Act 2001. The Bank will also clarify that associated entities of scheme administrators can be recipients of Issuer Payments.

Proposal 7: Adopt. The Bank's Standards No. 1 and No. 2 of 2016 will be modified, such that for scheme-issuer arrangements where one entity sponsors another for a card-issuing arrangement, it is only the sponsoring issuer that is required to comply with the net compensation provisions.

Proposal 8: Adopt the first option. The Bank will provide transition arrangements that allow, for the reporting period ending 30 June 2019 only, an issuer to choose whether to comply fully with current Standard or fully with the revised Standard. The issuer must notify the scheme of its choice, and the scheme must report on the same basis as the issuer for each scheme-issuer agreement. In the event that an issuer fails to notify the scheme of its choice by the date specified in the varied Standard, the issuer will be deemed to have elected to comply with the current Standard and a scheme must report compliance with the current Standard for that scheme-issuer arrangement for the reporting period ending 30 June 2019. Thereafter, issuers and schemes must comply with the revised Standard only.

Box F: Expected Impact of the Variations on Compliance Costs

During consultation, the Bank asked stakeholders to estimate compliance costs under the current and proposed Standards. Two stakeholders quantified their estimated compliance costs based on the current and the proposed variations in their entirety; another seven qualitatively described the expected impact of the proposed variations.[35] Based on this information, the Bank estimates that the adoption of the proposed variations will result in a modest net reduction in ongoing annual compliance costs.[36] The Bank expects that a limited number of entities will experience a temporary increase in compliance costs during the transition period.

Stakeholders identified proposals 1, 2, and 8 as potentially materially impacting compliance costs, which are discussed below. Stakeholders supported the adoption of all other proposals, indicating that they would improve the clarity of the Standards.

Proposal 1: Most stakeholders suggested that a move to accruals based accounting would immediately and materially reduce their compliance burden by enabling the direct sourcing of more inputs into the net compensation calculation from financial accounts. One stakeholder noted that it does not use accruals accounting to manage its financial accounts for its cards business, but indicated that the proposed change would not materially affect its compliance burden.

Proposal 2: A majority of stakeholders supported the concept of issuer payments being those that relate to core services, though there was some disagreement regarding what should constitute Core Services. Five stakeholders suggested that the distinction between core and non-Core Services would increase their compliance burden. However, three of these entities indicated that this would be more than offset by a reduction in compliance burden from moving to an accruals approach for calculating net compensation. Most of the stakeholders who commented on the compliance burden in relation to Core Services expected it would decrease over time. Two stakeholders suggested that the distinction between core and non-Core Services would not materially affect their compliance burden. The Bank notes that the final definition of Core Service requires an assessment that is less complex than in the versions of the definition circulated to stakeholders. In view of this, the Bank expects Proposal 2 will have a moderately smaller impact on compliance costs than estimated by stakeholders in consultation.

Proposal 8: Issuers were supportive of the proposed transition arrangements which enable them to elect whether to certify under the current or proposed Standards in the reporting period ending 30 June 2019. Schemes objected to this proposal due to the potential to be required to make certifications under both versions of the Standards. Two schemes estimated that this would (for the one year of potential dual reporting) more than double their compliance burden compared with only being required to report under a single Standard.


See and [34]

Some stakeholders provided estimates of the impact they expected from specific proposals in isolation. For example, the impact on their compliance costs of adopting an accruals approach for calculating net compensation but no other changes to the Standards. [35]

In adhering to the Government's Regulatory Burden Measurement Framework, the Bank has estimated the Commonwealth Regulatory Burden Measure (RBM) for the variations to the Standards. The RBM is a quantitative estimate of the economy-wide impact on regulatory costs. This was calculated as $10,377 on an ongoing basis (that is, an increase in regulatory costs across the economy of $10,377 per year). Additionally, a start-up cost of $15,902 for card schemes was estimated for the reporting period ending 30 June 2019. These estimates should be interpreted with caution, as they are based on a very small number of quantitative estimates provided by stakeholders. Qualitative stakeholder estimates are not used to derive the headline RBM estimates. The majority of the qualitative estimates indicated a moderate decrease in ongoing regulatory costs as a result of the variations. [36]