Payments System Board Annual Report – 2007 Review of the Payments System Reforms

An important part of the Board's work over the past year has been the commencement of a wide-ranging review of Australia's payments system reforms. The origin of this review is a commitment the Bank gave when it announced the reforms to the credit card system in 2002. At the time, it stated that ‘The [Payments System] Board will also undertake a major review of credit and debit card schemes in Australia after five years, updating the findings of the Joint Study. On the basis of that review, it will consider whether the standards and access regime for the designated credit card schemes remain appropriate.’[9] The formal review process began in May this year, when the Bank released an Issues Paper providing relevant background to the reforms and setting out the issues that the review will consider.[10]

In determining the scope and nature of the review, the Bank has consulted widely. In September 2006, it sought written submissions from interested parties concerning how the review should be conducted and the issues it should consider. In total, eight submissions were received by the end of October, and all of these are available on the Bank's website (, along with additional submissions made earlier this year. The Bank also held numerous discussions with industry participants. The majority of submissions called for the review to be broad in nature, and to cover all the reforms, not just those relating to the credit card system.

The Board discussed these submissions at its November 2006 meeting and agreed that the review should be open, transparent and wide-ranging, and that it should provide an opportunity for all interested parties to be involved. Reflecting this, the Board agreed that the review would examine all the reforms to date, and would also consider the arrangements in some other payment systems that have not been subject to regulation, such as BPAY and ATMs. Moreover, in announcing the scope of the review, the Bank indicated that the review would be forward looking and focus on the payments system as a whole. It also indicated that it was particularly interested in what has changed since the reforms were implemented, and how this might bear on the regulatory regime in future.

As part of its deliberations, the Board also considered whether the review should be undertaken by a body other than the Bank. This followed calls by some industry participants for the review to be conducted, not by the Bank, but by another entity. In considering this issue, the Board recognised that the Parliament had given it, not another body, responsibility for payments policy. It also concluded that the Bank has the necessary expertise, and the understanding of the various, often opposing, positions within the industry, to provide appropriate advice to the Board. Based on these considerations, and the open and wide-ranging nature of the process, the Board concluded that it was appropriate for the Bank to conduct the review. A similar conclusion was reached by the House of Representatives Standing Committee on Economics, Finance and Public Administration, following a special hearing into the payments system in May 2006.[11]

The Issues Paper released in May 2007 sets out the following three interrelated questions that will form the basis of the review:

  • what have been the effects of the reforms to date?
  • what is the case for ongoing regulation of interchange fees, access arrangements and scheme rules, and what are the practical alternatives to the current regulatory approach? and
  • if the current regulatory approach is retained, what changes, if any, should be made to the standards and access regimes?

Each of these questions is discussed in considerable detail in the Issues Paper.

In conducting the review, the Board is keen to ensure that all parties have an opportunity to present their analysis and evidence, and for that analysis and evidence to be in the public domain. All submissions will be placed on the Bank's website, and the Bank will consult widely. As part of that process the Bank will co-host a conference on the reforms with the Centre for Business and Public Policy at the Melbourne Business School on 29 November 2007 in Sydney. This conference will provide an opportunity for a broad range of academics, industry participants, and policy makers to discuss the key issues confronting the review in an open forum. The Board sees it as an important part of the review process.

The Bank invited submissions on the questions raised in the Issues Paper by 31 August 2007. These submissions will be discussed with industry participants over September and October. The Board anticipates releasing its preliminary conclusions – including details of the general direction it is considering – for consultation in April 2008. If, at the end of that consultation, the Board was to propose making specific changes to the current standards or access regimes, the draft changes would be released for public comment. While there is inevitably some uncertainty as to the exact timing, it is anticipated that any changes to standards and access regimes would be finalised by the end of 2008.

Gathering Relevant Information

As part of the review, the Board has endorsed the Bank undertaking two significant studies in co-operation with industry. Work on both studies commenced in late 2006, and the preliminary results will be available at the time of the November conference.

Payment costs study

The first study is of the resource costs associated with different methods of payment. This study will update and extend the data collected as part of the Joint Study in 1999 and 2000. It will provide estimates not just of the costs of financial institutions in processing various types of payments, but also the costs of merchants and other participants in the payments system. The study will also cover a wider range of payment instruments than previously examined. In particular, in line with calls from a number of parties, it will provide estimates of the costs of cash payments, along with the costs of payments by credit cards, scheme debit cards, EFTPOS, cheques, direct entry and BPAY.

The Bank has consulted extensively with industry regarding the scope of this study, including seeking industry comments on the various reporting forms in March this year. A particular focus of this consultation was the appropriate balance between the need for detailed information, and the ability of respondents to reasonably provide such detail in the required time frame. The Bank developed the reporting forms with some assistance from Edgar Dunn and Company, a consulting firm with experience in payment systems. The final reporting forms were provided to participating institutions in April this year, with most institutions providing responses by end June. The Bank is currently analysing the data and, in some cases, seeking further information from participating institutions.

Payments use study

The second study will provide a comprehensive picture of how consumers use different methods of payment. It has three components: a survey of individuals; a survey of small businesses; and an analysis of transaction data provided by financial institutions and large merchants.

The survey of individuals asked around 1,000 people to record, in a pocket-sized diary, the details of every payment they made over a two-week period in June 2007. Individuals were also asked to record all cash withdrawals, and how those withdrawals were made. The survey was conducted by Roy Morgan Research on the Bank's behalf and around 670 individuals completed the diary. The survey results will provide the first comprehensive study in Australia of payment methods used by individuals, especially with regard to the use of cash.

The survey of small businesses, which was conducted by the Bank in March and April this year, collected data from a range of businesses across Australia on the methods used to receive payments from customers. This information is being used to supplement information the Bank is gathering from larger organisations. The survey was conducted online with the assistance of the Office of Small Business and a number of industry associations, including the Australian Hotels Association, the Australian Retailers Association, the Council of Small Business Organisations of Australia, CPA Australia, the Franchise Council of Australia, the Motor Trades Association of Australia, the National Institute of Accountants, the Australian Newsagents' Federation, the Pharmacy Guild of Australia, and Restaurant and Catering Australia. In total, around 260 businesses participated.

Finally, the Bank has gathered detailed information from a number of financial institutions on transactions undertaken on debit and credit cards, cheques, BPAY and internet banking. A number of large merchants and billers have also provided information on the number and value of transactions conducted on the various payment methods they accept.

Both the study on payment costs and the study on payment patterns are major pieces of work and have involved a significant commitment of resources, not only by the Bank, but also by a wide range of industry participants. The Board would like to record its thanks to all those involved. It is confident that the comprehensive picture of payment costs and patterns that will emerge will not only be useful to the Bank during the review process, but to all those involved in the payments industry.


Reserve Bank of Australia, Reform of Credit Card Schemes in Australia: IV Final Reforms and Regulation Impact Statement, August 2002, p.40. [9]

Reserve Bank of Australia, Reform of Australia's Payments System: Issues for the 2007/08 Review, May 2007. [10]

House of Representatives Standing Committee on Economics, Finance and Public Administration, Review of the Reserve Bank of Australia and Payments System Board Annual Reports 2005 (First Report), June 2006, p.39. [11]