Review of Retail Payments Regulation: Conclusions

The Payments System Board met on 18 October and concluded its Review of Retail Payments Regulation. The Bank has today released a Conclusions Paper setting out various policy actions, together with amendments to the Bank’s standards for card payment systems, which will contribute to a more efficient and competitive payments system.

The Board’s view is that Australia’s payments system is in most regards providing high-quality services for Australian households, businesses and government entities. Australia has a relatively low-cost payments system by international standards, with the average cost of all card payments having fallen significantly over the past two decades. The Bank’s earlier reforms to card payment systems have contributed to these outcomes.

The new policy actions coming from this Review relate mostly to: dual-network debit cards and least-cost routing of debit transactions; interchange fees; and scheme fees. A number of measures are aimed at reducing the cost to small and medium-sized merchants of accepting card payments. RBA Assistant Governor (Financial System) Michele Bullock said, ‘The ability of merchants to choose how they route debit card transactions is an important feature of the market that helps to put downward pressure on merchant fees. These reforms will help to preserve this competitive pressure.’

The Board has also concluded that it would be in the public interest for ‘buy now, pay later’ providers to remove their no-surcharge rules, consistent with the Board’s longstanding position on such rules. Given the complexity of the regulatory issues, the Bank will continue engaging with the Treasury on regulatory approaches.

The Board thanks stakeholders for their constructive engagement with the Bank throughout the Review, and for their patience as the Review process was lengthened by a temporary suspension in response to the COVID-19 pandemic. The Board has carefully considered the array of views put forward by stakeholders. It has balanced the various costs and benefits of different policy proposals to reach conclusions that, in its view, best serve the public interest and meet the Bank’s mandate to promote the efficiency of the payments system and competition in the market for payment services.

Details

The main new policy measures include:

• All debit card issuers with more than 1 per cent of the total value of debit transactions (currently around $4 billion each year) will be expected to continue issuing dual-network debit cards (DNDCs). Based on 2020 data, this expectation will apply to eight issuers, which together account for around 90 per cent of all debit card transactions.
• For these issuers, both card schemes on their DNDCs should be provisioned in all form factors, including mobile wallets (where the functionality is supported by the relevant schemes and mobile-wallet providers). The Bank has begun engaging with mobile-wallet providers that do not currently support the provisioning of both networks on DNDCs to encourage them to do so.
• All acquirers and payment facilitators providing card acceptance services to merchants are expected to offer and promote least-cost routing (LCR) functionality to merchants in the device-present (in-person) environment.
• In the device-not-present (online) environment, all acquirers, payment facilitators and gateways will be expected to offer and promote LCR functionality to merchants by the end of 2022. The Bank expects the industry to follow a set of principles regarding the implementation of LCR in the online environment.
• The debit interchange standard will be amended to introduce a ‘sub-benchmark’ for single-network debit cards (SNDCs), such that the weighted-average interchange fee on SNDCs from a given scheme must be no more than 8 cents. There will also be a reduction in the cap on debit (and prepaid) interchange fees that are set in cents terms from 15 cents to 10 cents.
• Schemes will be required to provide the Bank with access to their scheme fee schedules and all scheme rules, and to notify the Bank promptly of any changes to these. Schemes will also be required to provide to the Bank quarterly data on scheme fee revenue and rebates.
• The Bank will also implement new initiatives to further improve the transparency of payment costs for merchants, to help reduce some impediments to competition in the acquiring market for smaller merchants.

A more detailed summary of the key policy actions and their rationale, along with the main changes from the Consultation Paper released in May, is provided in the Executive Summary.

Background

The Review was initiated with the publication of an Issues Paper in November 2019. After extensive consultation with stakeholders, the Bank published the Board’s preliminary views and some draft amendments to the standards in a Consultation Paper in May 2021. The Bank received submissions on the Consultation Paper from 35 organisations and the staff again met with a wide range of stakeholders.

Exemption from Access Regime for the ATM System

Separate to the Review, the Board has taken a decision to grant an exemption from aspects of the Access Regime for the ATM System, to enable card issuers to access other participants’ ATM fleets in order to provide cardholders with wider access to fee-free ATMs. The exemption will support changes in the ATM industry that can help address some of the challenges associated with declining ATM use and rising costs of ATM deployment, and thereby help sustain broad coverage of ATMs. In discussing the exemption, members stressed that any use should not be accompanied by the re-introduction of opaque issuer fees on cardholders of the kind that existed prior to the introduction of the ATM Access Regime in 2009.