Review of the Regulatory Framework for the EFTPOS System: Consultation on Options for Reform – June 2012 6. Transitional Arrangements

The access and interchange fee arrangements embodied in the current regulatory framework for the EFTPOS system are in part intended to facilitate competition in the provision of EFTPOS services by enabling participants that are not in a strong bargaining position, such as new or potential entrants, to access similar interchange fee arrangements to larger and more established participants. EPAL's multilateral interchange fee arrangements do not appear to be inconsistent with this intention. The shift to the multilateral interchange fee schedule has, nonetheless, been quite a large change to the market, particularly given that it has entailed a reversal in the direction of interchange fee flows for most transactions. Looking ahead, it is not clear that the switch in the direction of interchange fees necessarily affects the long-run viability of different business models, but there could be significant disruptions, at least in the short-run. This is most applicable for some specialist business models, particularly sole acquirers that used to receive interchange fees under bilateral arrangements. The effects will depend on the way that the change in interchange fees flow through to pricing to merchants and bank customers, with evidence to date suggesting that pricing adjustments are still underway.

Given this, there may be a case for putting transitional arrangements in place to facilitate transition to the new governance and regulatory regime. The Bank is seeking views on the form of any transitional arrangements that might be appropriate, in conjunction with a new access regime and interchange fees standard that may be imposed, if the Board determines they are required.