Review of the Regulatory Framework for the EFTPOS System: Consultation on Options for Reform – June 2012 5. Access Framework

The current regulatory framework for access to the EFTPOS system, comprising the EFTPOS Access Code and Access Regime, was designed to deal with the factors inhibiting access to the then bilateral system. Under a bilateral system, a potential entrant had to rely on individual incumbent participants to negotiate access on reasonable terms, including the cost of connection, interchange fees and reasonable timeliness for completing the process. Therefore, the Access Code and the Access Regime set some requirements for these negotiations.

The transition of the EFTPOS system towards multilateral arrangements has changed the nature of some of the access issues faced by the system. In scheme-governed payment systems, access is typically regulated by membership requirements set out in the rules of the central scheme. In the case of payment systems governed by MasterCard and Visa, access regimes imposed by the Bank are designed, in part, to relax previously restrictive membership requirements.

Currently, EPAL plays a coordinating role in admitting new members to its multilateral arrangements, with its Scheme Rules setting out requirements for membership, and placing an obligation on EPAL to admit applicants that meet those requirements. However, prospective entrants still need to reach bilateral agreements on connections with existing participants in the system. EPAL's Scheme Rules do not place explicit obligations on members to facilitate technical access for prospective entrants as these provisions are contained in the Access Code, supplemented by the Bank's Access Regime.

Access Code

The Access Code is administered by APCA on behalf of EFTPOS Access Australia Limited. It was developed and implemented in 2006 by the industry as a means of regulating access to the EFTPOS system. Given it is an industry code, the Bank does not play any role in the operation of the Access Code, but the effectiveness of current industry access arrangements are relevant in determining whether regulation of access arrangements by the Bank is still required.

The Access Code currently relates to the ‘EFTPOS system designated by the RBA’.[12] It will therefore be necessary for the industry to provide some clarity about whether the Access Code will reflect the new designation – based on EPAL's Scheme Rules – that has now been put in place by the Bank. This might determine whether a party has a right to establish a connection for the exchange of debit transactions that are not subject to EPAL's Scheme Rules, or whether such a connection would be a matter solely for commercial negotiation. As a related issue, a party seeking to negotiate a connection, but which is outside EPAL's framework, would most likely not be subject to the provisions of any new EFTPOS interchange fees standard or access regime, given that the Bank has adopted a narrow definition of designation for the EFTPOS system.

Another important consideration is whether EFTPOS Access Australia Limited (or APCA on its behalf) remains the appropriate body to administer the Access Code and to govern access to the EFTPOS system. Instead, EPAL itself could potentially play this role. This would require all parties to have confidence that EPAL could govern access in a fair and objective manner. In general it could be expected to be in EPAL's interests to encourage participation in the system.

These are decisions for the industry, but because they are important to the overall access framework, the Bank will naturally take a keen interest in the outcomes.

Access Regime

The existing Access Regime imposed by the Bank has two components – the no-discrimination provisions related to interchange fees and the cap on connection charges. Both have been affected by recent industry developments. Specifically, the introduction of multilateral interchange fees has affected the interpretation and potentially the relevance of no-discrimination provisions, and more efficient connection arrangements under the COIN have implications for the cap on connection charges. The following sections discuss these issues further and provide some options for reform.

Given that the Board has imposed a new designation for the EFTPOS system, any future regulation of access arrangements would be achieved by imposing a new access regime that applies to the newly designated EFTPOS system. To impose an access regime the Bank must have regard to:

  1. whether imposing the access regime would be in the public interest; and
  2. the interests of current participants in the system; and
  3. the interests of people who, in the future, may want access to the system; and
  4. any other matters the Reserve Bank considers relevant.[13]

The Bank may also revoke the existing access regime if it considers it is appropriate, having regard to the same factors.

The starting point for considering the provisions of a potential new access regime for the EFTPOS system, as discussed in the following sections, is the provisions in the current Access Regime.

No-discrimination provisions

The no-discrimination provisions of the current Access Regime have become more difficult to interpret now that multilateral interchange fees can flow either from acquirer to issuer or from issuer to acquirer. The provisions currently specify:

No discrimination

  1. An acquirer or self-acquirer who becomes a participant in the EFTPOS system for the first time, on or after 13 September 2006, is for three years entitled to receive an interchange fee from an issuer with whom it has an Access Agreement no less than the lowest interchange fee payable by that issuer to an existing acquirer or self-acquirer.
  2. An issuer who becomes a participant in the EFTPOS system for the first time, on or after 13 September 2006, is for three years not required to pay an acquirer or self-acquirer with whom it has an Access Agreement an interchange fee greater than the highest interchange fee payable by an existing issuer to that acquirer or self-acquirer.

The intent of these provisions was to ensure that a new entrant had access to interchange fees that were in line with existing participants. At the time these provisions were put in place, interchange fees were regulated to flow from the issuer to the acquirer, as had been the case prior to regulation of the system. With the establishment of EPAL's multilateral interchange fee schedule, fees for most transactions flow in the reverse direction – from the acquirer to the issuer. Paragraph 18 could now be interpreted as requiring that new acquirers receive an interchange fee, while acquirers subject to multilateral fees pay interchange fees under EPAL's Scheme Rules. In other words, new acquirers might receive substantially more favourable treatment than the incumbents under these arrangements. The terms ‘less than the lowest’ and ‘greater than the highest’ are also more difficult to interpret now that interchange fees can flow in either direction (that is, both positive and negative interchange fees under the Standard).[14]

While it would be possible to clarify the no-discrimination provisions, a more important issue is whether there is a continued need for provisions of this type when multilateral fees have been adopted by the industry. As discussed, the no-discrimination provisions were designed to prevent existing participants from using negotiation over interchange fees to frustrate entry. However, if new entrants are able to access multilateral interchange fees, which apply equally to all participants, these concerns are clearly reduced.

In order to provide clarity in the regulatory framework, the Board's preliminary view is that the no-discrimination provisions in their current form may no longer be appropriate. It therefore sees two possible approaches for a new access regime – putting in place provisions that are workable under new interchange fee arrangements, or omitting the provisions entirely.

Option 1: Imposing no-discrimination provisions that are workable under new interchange fee arrangements

A new access regime could impose no-discrimination provisions that accommodate the new interchange fee arrangements. Given that new entrants can access multilateral interchange fees through EPAL, these no-discrimination provisions would only apply to bilateral interchange fees and would also entitle a new entrant to establish a bilateral fee. For example, a new acquirer establishing a bilateral agreement with an issuer would, for a limited period (e.g. three years, as currently provided for in the Access Regime), be entitled to a bilateral interchange fee no less favourable than the least favourable (to the acquirer) bilateral fee agreement that issuer has established with an existing acquirer or self-acquirer. Likewise, a new issuer establishing a bilateral agreement with an acquirer would, for a limited period, be entitled to a bilateral interchange fee no less favourable (to the issuer) than the least favourable bilateral interchange fee agreement that acquirer has established with an existing issuer. Depending on the existing bilateral agreements in place, fees could flow from either acquirer to issuer or issuer to acquirer under these provisions, so long as they are no less favourable to the new entrant than any bilateral agreement put in place for its competitors.

The practical effect of these potential provisions depends on the extent to which there are bilateral agreements in the system. If most participants had adopted bilateral rates with one another, the provisions would place the new entrant on comparable terms to existing participants. The effect would be less clear where only a small number of participants had established bilateral interchange fees with other participants. For instance, where an existing self-acquiring merchant had established bilateral interchange fees with issuers, the provisions would allow a new self-acquiring merchant to establish equivalent bilateral interchange fees. On the other hand, allowing a new entrant conducting more traditional acquiring business to access that same bilateral rate might provide the new entrant with a competitive advantage over other more traditional acquirers.

Option 2: Omitting the provisions

This option would omit the no-discrimination provisions from a new access regime, since new entrants are able to rely on the multilateral interchange fee schedule set by EPAL to access the system on the same terms as other participants. This might disadvantage the new entrant if most participants were operating on bilateral rather than multilateral fees. However, this risk is likely to be low based on the Bank's understanding, at this stage, that most members of EPAL have now opted-in to the multilateral interchange fee schedule.

Connection Charges

The migration of the industry to the COIN for the exchange of messages in the EFTPOS system has the potential to reduce the cost to existing participants of establishing connections to new entrants. The current cap (referred to as the access charge benchmark) on the amount an existing participant can charge a new entrant to establish connections under the Access Regime is based on a cost survey undertaken by APCA in 2004, under the old technical connection arrangements.[15] The cost to the participant with the lowest connection costs was adopted as the benchmark. Under the provisions of the current Access Regime, this benchmark is not scheduled for its next review until January 2014. The Board is seeking views on two main issues:

  • Given the change in architecture, is there a case for a new access regime to provide for an earlier recalculation of the benchmark, and if so, how would the benchmark be estimated?
  • Would there be a case to remove regulation of the cost of connection, if suitable arrangements to limit the cost of access were imposed by EPAL?

The options with regard to access charges are therefore as follows.

Option 1: Put in place an access charge benchmark that is the same as provided for in the current Access Regime

The current access charge benchmark, established under the current Access Regime, would be replicated in a new access regime; that is, the access charge benchmark imposed would be the current benchmark of $87,776. A new access charge benchmark would apply from January 2014, based on a new survey of connection costs conducted during 2013. Those connection costs would reflect the cost of establishing a connection via the COIN. While this approach allows time for some new entrants to establish a connection, providing observations upon which the access charge benchmark calculation could be based, it might mean, however, that connection charges remain higher than necessary in the interim.

Option 2: Provide for an earlier recalculation of the access charge benchmark

A new access regime could require a more timely recalculation of the access charge benchmark. This could allow new entrants to benefit sooner from the cost savings that have arisen from the adoption of the COIN. The current methodology relies on estimates of actual connection costs over the preceding four years and asks for data to be provided 4½ months before the new cap is due to apply. Given that any new access regime that may stem from this review is unlikely to be put in place until later this year, the scope for bringing the benchmark recalculation forward from that provided for in the current Access Regime would be limited, unless the industry had voluntarily collected the relevant data ahead of the imposition of a new access regime, if required.

Option 3: Remove regulation of the cost of connection

The Board could consider removing regulation of the cost of connection if it were satisfied that appropriate arrangements to limit connection costs would be put in place by EPAL.

Discussion of the Options

After considering the various options for the future regulation of access arrangements in light of changes to the governance and architecture of the EFTPOS system, the Board's preliminary view is that the current form of the no-discrimination provisions is not effective for the current EFTPOS system, based on the following considerations. First, the current form of the no-discrimination provisions may be difficult to interpret in the current EFTPOS environment. Second, given that new entrants are now able to access the multilateral interchange fee schedule set by EPAL on an equal basis to existing participants, it is not clear that the provisions are necessary to ensure access on fair terms for new entrants.

The Board is therefore seeking views on whether it is appropriate to retain some form of no-discrimination provisions in a new access regime. Were such provisions to be adopted, they might have a broadly similar effect to the existing provisions (focused on bilateral fees), but be drafted in a way that is workable under the new EFTPOS interchange fee arrangements.

The means of establishing a connection for the purposes of exchanging EFTPOS payments has changed with the establishment of the COIN. As a consequence, the current cap on connection charges may no longer be a good measure of the cost to participants of establishing a connection to the EFTPOS system. The Board is seeking views on the benefits and practicality of bringing forward the recalculation of the access charge benchmark, if such a benchmark were determined by the Board to be required in a new access regime. However, were EPAL able to demonstrate that it could limit the cost of connection in a way that was satisfactory to the Board, the Board would also be prepared to consider whether regulation of the cost of connection continued to be required.

The above discussion raises the possibility that the Board might consider all elements of the current Access Regime to be no longer necessary. The Board could consider it to be in the public interest to revoke the current Access Regime, without putting a new one in its place. This approach would be reliant on the Board being satisfied that a suitable and appropriate access framework had been provided by the industry.

For the purposes of consultation, Attachment 3 sets out a draft access regime, incorporating possible wording of new no-discrimination and access charge benchmark provisions, should the Board determine these provisions are necessary having regard to public interest considerations.


Paragraph 1.1(c) of the EFTPOS Access Code. Available at <$File/EFTPOSAccessCode.pdf>. [12]

Section 12(2) of the Payment Systems (Regulation) Act. [13]

The current interchange fees Standard considers a fee paid to the acquirer to be a negative interchange fee. Therefore, ‘less than’ could be considered to mean a larger negative number – the opposite of what was intended in the Access Regime. [14]

The cap was adjusted for inflation on 1 January 2010. [15]