Payment Card Access Regimes: Conclusions – March 2014 Assessment

The Reserve Bank may vary an access regime if it considers it appropriate to do so, having regard to:

  1. whether the variation would be in the public interest;
  2. the interests of the current participants in the system;
  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.

In determining the public interest, the Reserve Bank must have regard to the desirability of payment systems:

  1. being (in its opinion):
    1. financially safe for use by participants;
    2. efficient; and
    3. competitive; and
  2. not (in its opinion) materially causing or contributing to increased risk in the financial system.

The Bank is satisfied that the schemes are more open to admitting new types of members than when the current access arrangements were introduced in 2004. This was accepted by many parties in consultation. Accordingly, an approach that removes the current regulatory constraints on access is in the interests of potential participants in the systems as it facilitates access. Potential members and existing SCCIs will also benefit from removing regulatory costs arising from the SCCI regime that are higher than warranted for credit card business. Improved access to the systems (including the threat of entry) is likely to increase competition in card issuing and acquiring, resulting in pressure for participants to provide lower prices and better service to payments system users. Improved access is also likely to promote innovation; several of the potential entrants have business models that rely on innovations that may increase the efficiency of payments and, through the effects of competition, place pressure on other participants to do likewise.

While there can be no guarantee that the schemes will use any additional discretion to admit new entrants under Options 2 and 3, the Bank considers it likely. Nonetheless, regardless of the approach taken by the schemes, Option 2 ensures that parties that have gained access to the systems under the existing framework will remain eligible. A further benefit of removing current regulatory constraints on access is that, by placing the assessment of eligibility for access to the schemes in the hands of the schemes themselves, APRA will be able to better direct its resources towards its core mandate.

Most current participants (directly or through industry bodies) supported the status quo, expressing concerns about the potential for additional risk as a result of increased access. They argue that APRA supervision provides greater comfort that participants will not bear losses resulting from the default of another participant. While there can be a high degree of confidence that new entry will enhance competition and efficiency, there is less certainty about the effect of new entry on the risk faced by existing participants. This may depend, among other things, on how the schemes respond to the greater discretion provided under Options 2 and 3, the nature of any new types of participants admitted and the risk management applied by the schemes. Nonetheless, there are a number of factors that suggest that a material increase in risk for participants is unlikely:

  • Options 2 and 3 do not compel the schemes to expand membership from the current arrangements; if they consider that the admission of entities not subject to prudential supervision gives rise to unacceptable risks, they will not admit them. This would include the case where a scheme was not confident that it could obtain reliable information from a potential participant.
  • The schemes have incentives to ensure that their respective systems remain attractive to participants. It is not in their interests to introduce risks that might cause existing participants to reconsider their membership.
  • The schemes argue that they have robust risk management arrangements in place, suitable for dealing with non-financial-institution members. In particular, their use of collateral requirements for participants can greatly reduce potential exposures arising from a participant default.

The Bank's view is that removing regulatory restrictions on new entry will not materially cause or contribute to increased risk in the financial system as the values transacted, and therefore obligations arising between participants, are small relative to the transactions processed in the payments system more broadly. For instance, the daily value of transactions in all credit card systems in Australia averaged $720 million in 2012/13, with net obligations likely to be a fraction of this. This compares with RTGS payments of $158 billion and Direct Entry payments of $40 billion per day.

While both deregulatory options, Options 2 and 3, provide improved access compared with the status quo, the additional, light-touch controls imposed by the Access Regimes under Option 2 offer some benefits over Option 3. These include:

  • assurance that former SCCIs remain eligible to participate in the schemes
  • greater assurance of a consistent approach to access by the schemes
  • transparency of that approach for interested parties
  • statute-based avenues for redress for potential entrants who believe they have been unreasonably denied entry.

While Option 2 would result in some modest additional costs for the schemes, it offers benefits to both potential and existing participants relative to Option 3.

One issue the Bank has considered during its deliberations is the fact that under the proposed approach, an entity that is not eligible to participate under the criteria set by the schemes will no longer have the option of gaining eligibility through SCCI status. However, the Bank considers that this concern is outweighed by the likelihood that scheme eligibility will be broader than currently and that costs of participation for a non-ADI are likely to be lower. The Bank is also aware that, while designed for the credit card systems, the SCCI framework might benefit an entity in other payment systems, notably the Bulk Electronic Clearing System (BECS). The Bank will liaise with the Australian Payments Clearing Association (APCA) to seek to ensure that the removal of the SCCI framework does not have adverse consequences for participants in other payment systems.

The Bank's assessment is that Option 2, namely removing the SCCI regime and amending the Access Regimes as set out in Attachment 1, would be in the interests of people who in the future may want to access the MasterCard and Visa systems and would promote competition and efficiency, while not materially increasing risk in those systems. On balance, the Bank considers that Option 2 best meets the public interest.