Review of Card System Access Regimes: A Consultation Document – May 2013 2. Background and Potential Issues


Conditions of access to card schemes have the potential to affect payments system competition and efficiency. High barriers to entry are likely to entrench the market power of incumbents, while if there are low barriers to entry, competition can be effective even where the market is quite concentrated. This was highlighted in the Final Report of the Financial System Inquiry (the Wallis Committee).[2] Among other things, the Inquiry noted that the rules of the MasterCard and Visa credit card systems were not transparent and might limit membership to the then existing range of financial institutions. A particular concern was that card scheme rules might be used to restrict the ability of non-deposit-taking institutions to compete in new payment technologies.

The issue of access was examined further in a study (‘the Joint Study’) conducted in 2000 by the Bank and the Australian Competition and Consumer Commission (ACCC).[3] At the time, scheme rules stipulated that only card issuers that were prudentially supervised or organised under local banking legislation were eligible to participate. In Australia, this meant that card issuers and acquirers had to be authorised deposit-taking institutions (ADIs) supervised by the Australian Prudential Regulation Authority (APRA). Card acquirers were also required to be issuers to be eligible, and penalties were imposed on institutions that were significant net acquirers.

The Joint Study recognised that there may be good reasons why card issuers should be required to be of sound financial standing. The card networks are built around arrangements that ensure the merchant will be paid even if the institution that issued the card cannot meet its obligations, which may have implications for other members of MasterCard and Visa. This means that there is a need to provide some confidence that new participants do not impose significant settlement risks on the system – a concern that the schemes addressed by restricting issuing (and therefore also acquiring) to supervised financial institutions. The Joint Study therefore concluded that restrictions on issuing could be justified if their aim was to ensure that issuers were able to meet their obligations and would not disrupt the credit card system; the Study also recognised that the ADI requirement had been an effective screening device for the schemes.

However, the Joint Study found that participation criteria based on institutional status may have created higher barriers to entry than those necessary to ensure the security and integrity of the card schemes.[4] Issuers did not need to be deposit takers, for example, and cards could be issued by non-financial institutions that were financially sound without adding settlement risks to the system. The Study saw no justification for the requirement that acquirers also had to be issuers – as net receivers of funds from card issuers (which are passed on to merchants), acquirers do not generally introduce significant settlement risk to the system. While the Joint Study noted that there were other attributes that a card scheme may find desirable in an acquirer (e.g. the ability to process transactions in an efficient and reliable manner, to bear the risk of merchant fraud, and to bear the chargeback costs if a merchant failed without having delivered goods already paid for by cardholders), none of these attributes required the acquirer to be an ADI.[5]

To address these concerns, the Bank worked closely with APRA to formulate a new class of ADIs – specialist credit card institutions (SCCIs) – to allow entities that are not deposit-takers to undertake issuing or acquiring activities in the MasterCard and Visa credit card systems. These entities would be subject to prudential supervision by APRA in a manner consistent with the risks they incur. The reform was put in place by expanding the definition of ‘banking business’ under the Banking Act 1959 to include credit card issuing and acquiring in Australia in the designated MasterCard and Visa systems.[6] This allowed a wider range of prospective participants to be authorised by APRA as ADIs and to become eligible to participate in the card schemes. The Bank subsequently imposed access regimes on the MasterCard and Visa credit card systems following extensive consultation; the regimes took effect in February 2004.[7] The access regimes, aimed at improving competition and efficiency in the provision of credit card payment services, require that any ADI be eligible to apply to participate in the MasterCard and Visa credit card systems in Australia.[8] They require the schemes to not discriminate between types of ADIs, including SCCIs, when assessing applications for participation; the schemes are also prohibited from preventing a participant from being an issuer only, an acquirer only, or both an issuer and an acquirer. It is nonetheless up to the schemes to assess whether to admit an entity as a scheme member, subject to the requirements of the access regimes.

In 2005, Visa advised the Bank that its international rules may have operated to prevent SCCIs from joining the Visa Debit system and that an SCCI intending to acquire both Visa credit and debit card transactions might not be able to join the scheme. The Payments System Board (the Board) decided, after consultation, to impose an access regime on the Visa Debit system to ensure that SCCIs are eligible to join the Visa scheme to provide services to merchants accepting both Visa credit and debit cards.[9] The Access Regime for the Visa Debit System is largely the same as that imposed on the Visa credit card system.

The intent of these reforms was to widen the eligibility criteria for scheme membership and thereby open up access to these systems, and at the same time minimise any risks to the payments system as a whole. Of the 15 to 20 direct issuers and acquirers in the MasterCard and Visa systems in Australia, two are SCCIs that gained access under the regime introduced in the early 2000s.

Potential Issues

In the Bank's assessment, the access regimes represented a balance between competition and financial safety. However, a number of issues have arisen in more recent years such that the reforms may no longer be fulfilling their original objectives. These issues are discussed in the sections that follow.

Before proceeding, it should be noted that aside from the Bank's access regimes, other regulations may also affect prospective participants' eligibility to participate in the card schemes. In particular, the Banking Act 1959 stipulates that the only entities that may carry on ‘banking business’ are ADIs, the Reserve Bank of Australia, and entities that are granted an exemption from the requirement. ‘Banking business’ is defined in the Banking Regulations 1966 to include credit card acquiring and credit card issuing, if undertaken by a participant in a credit card scheme designated as a payment system under section 11 of the Payment Systems (Regulation) Act 1998 on 11 April 2001 (i.e. the MasterCard and Visa credit card systems).[10] Therefore, even without the Bank's access regimes in place, a prospective credit card acquirer or issuer can only participate in those systems if they have been authorised as an ADI by APRA or have been granted an exemption from the requirement.

Access regimes as a barrier to entry

The access regimes were originally designed to lower barriers to entry and, as noted above, have allowed more participants into the MasterCard and Visa systems while minimising risks to the payments system. More recently, however, the access regimes appear to have had the potential to prevent some entities from participating in the schemes when they might otherwise have been able to do so. Accordingly, they may no longer represent an appropriate balance between competition and financial safety.

Prospective participants may be discouraged from entry because the access regimes impose a regulatory burden – that of prudential supervision by APRA – that may be more onerous than necessary given the nature of their operations and financial standing. For instance, the combination of the Bank's access regimes and regulatory requirements administered by APRA currently require an entity wishing to become a MasterCard or Visa acquirer to go through the same ADI authorisation process and ongoing prudential supervision as a prospective issuer, despite posing arguably less risk to the payments system. Equally, financially sound merchants wishing to acquire their own transactions may also be discouraged from doing so by the combined regulatory requirements of the Bank's access regime and banking legislation.

The Bank is aware of an increasing number of entities – often foreign corporations focusing on non-traditional products such as ‘virtual cards’ – with an interest in undertaking credit card issuing or acquiring activities, and not other banking business, in Australia. At the same time, both MasterCard and Visa have expressed an inclination to accept a wider range of participants into their systems. This may reflect, in part, the change in the corporate structure of the schemes, with the shift from member-owned associations to public companies. It may also reflect the nature of the new products offered by the prospective entrants and the fact these entities may already be subject to prudential supervision overseas. Yet these prospective participants would not be eligible to participate under the Bank's access regimes unless authorised by APRA as ADIs. It is therefore possible that the regimes are now contributing to a higher barrier to entry than would be the case in their absence.

The requirement that participants must be ADIs also means that the Reserve Bank, in its capacity as a provider of banking services, is not eligible to apply to become a participant in the MasterCard and Visa systems because the Bank is not an ADI.[11] The Bank is a banker to various government departments and agencies, and in this capacity provides card acceptance services indirectly to some customers (using the services of other financial institutions); in the future, it may wish to acquire card transactions directly for those customers. To do so, the Bank would need to seek membership of the relevant schemes. While it would currently be able to do so for the eftpos scheme, the access regimes for the MasterCard and Visa schemes would prevent the Bank from participating in those systems because it is not an ADI.[12]

The merits of the Reserve Bank participating in schemes in its role as banker to a range of government agencies are not considered in this consultation.[13] However, it is appropriate for the Board to consider whether the access regimes should continue to prevent Reserve Bank participation. In doing so, there are a number of issues that may be taken into account.

First, it may be undesirable for regulatory arrangements to allow the Bank – in its banking business activities – to participate in one card scheme (eftpos) and not in other competing schemes. Such a position would not place the schemes on an equal competitive footing. Second, participation by the Reserve Bank does not bring additional risks to those systems, given the lack of credit risk posed by the Bank. Third, to the extent that there are any conflicts of interest between the Bank's regulatory function and its participation in the schemes at an operational level, these would need to be properly managed. In particular, the Board would need to ascertain that the Bank's policy on managing potential conflicts of interest arising from the Bank's commercial activities was being observed.[14]

Transfer of costs to the prudential regulator

To an extent, the current regulatory framework transfers the cost of screening the soundness of current and prospective members of the card schemes to APRA. This reflects the arguments made at the time – and acknowledged by the Board – that there was merit in using APRA's prudential oversight as a screening device, which was more objective than scheme-set criteria and which reduced the risk that the schemes would apply variable standards or that existing members might use their position inappropriately. However, the question now arises as to whether these arguments remain appropriate in light of the change in the schemes' corporate structure and the nature of some prospective participants' activities. In particular, risks to the system may be small if a prospective participant has only limited business in Australia, concentrating on niche market segments (e.g. issuing virtual cards to travel agents). In such a case, it may be more appropriate for the schemes to bear the cost of screening and ongoing monitoring of these entities. The cost of assessment is likely to rise for APRA with the number of enquiries from prospective participants. A broader issue to consider is whether prudential regulation of all participants is appropriate.


Financial System Inquiry (Wallis Committee) (1997), Financial System Inquiry Final Report, Australian Government Publishing Service, Canberra, pp 399–400, available at <>. [2]

Reserve Bank of Australia and Australian Competition and Consumer Commission (2000), Debit and Credit Card Schemes in Australia: A Study of Interchange Fees and Access, October. Available at <>. [3]

In addition to the criteria for participation, the Joint Study also examined the price of entry to the credit card schemes. It found that MasterCard and Visa membership fees were relatively low and did not appear to act as a deterrent to entry. [4]

While merchants would have to hold their deposits with an ADI, this need not be their acquirer. [5]

See regulation 4 of the Banking Regulations 1966. [6]

The Access Regime for the MasterCard Credit Card System is available at <>, and the Access Regime for the Visa Credit Card System is available at <>. [7]

The same requirements were placed on the Bankcard system. [8]

The Access Regime for the Visa Debit System is available at <>. Differences in the rules of MasterCard and Visa meant that such an access regime was not necessary for the Debit MasterCard system. [9]

‘Designation’ is the first of a number of steps the Bank must take to exercise its powers over a payment system under the Payment Systems (Regulation) Act 1998, and has no other effect. The MasterCard designation is available at <>, and the Visa designation at <>. The Bankcard scheme was also designated at the same time but the designation was revoked in April 2006 following the scheme's closure. [10]

The Bank is empowered under section 8 of the Banking Act 1959 to conduct banking business as the Reserve Bank without ADI status. [11]

The scheme rules for the eftpos system do not limit eligibility for participation to supervised financial institutions only, but instead allow an applicant with ‘sufficient financial resources to fulfil its obligations as a Member’ to be eligible. In addition, debit card acquiring is not defined as ‘banking business’ under the Banking Act 1959 or the Banking Regulations 1966. Hence, entities undertaking this activity in the eftpos system need not be ADIs. [12]

These are not matters for the Payments System Board, but are rather for consideration by the relevant department and the management of the Bank on commercial grounds. [13]

The policy, Managing Potential Conflicts of Interest Arising from the Bank's Commercial Activities, is available at <>. [14]