ABA SUBMISSION TO RESERVE BANK ON PROPOSED CREDIT CARD REGULATION Sydney, 15 March, 2002: The Australian Bankers’ Association’s (ABA) submission on the proposed credit card intervention, lodged today, supports the Reserve Bank of Australia’s (RBA) reform principles, but argues that the proposed cut in interchange fees is unjustified and not in the public interest. David Bell, Chief Executive of the ABA, said the Association agrees with the RBA that interchange fees for credit card transactions should be set in an open, transparent and objective manner; and that in the context of the RBA’s cost-based regulatory principles these fees should be benchmarked on the costs of the services provided by credit card issuers from which merchants derive tangible benefit. ABA also supports the principle that entry into the Australian credit card system should not be impeded by unnecessary restrictions. ABA believes that a vigorously competitive credit card industry that is prudentially sound is in the national interest. “However, ABA does not support the RBA’s imposed price controls under which interchange fees would be slashed by about three–quarters, due to arbitrary exclusion of a number of legitimate systems costs.  Australia already has very low interchange fees by world standards,” Mr Bell said. “For the reasons described in the submission, ABA believes that the RBA is embarking on a dangerous experiment with Australia’s payment system, an experiment which has no precedent anywhere or sound analytical basis, and which will have consequences adverse to the public interest.” The ABA submission argues that the significant cut in the interchange fees will result in a range of consequences, including higher consumer costs for using credit cards, unfair advantage given to large retailers over small retailers, and a disproportionate impact on smaller regional banks, credit unions and building societies. “Moreover, the proposed regulations are to apply to the ‘open’ credit card associations — Bankcard, MasterCard and Visa — and not to American Express, Diners Club and store cards. This cuts across the principle of competitive neutrality and will unfairly ‘tilt the playing field.’” Mr Bell said by contrast to the RBA’s extreme proposed cut to interchange fees to around 0.3%, the European Commission has agreed, subject to consultation, to a phased reduction in certain European credit and debit interchange fees to an average of 0.7 % over five years to 2007.  And since debit interchange fees are typically lower than 0.7%, and because the decision applies to a small proportion of transactions, European credit interchange fees may be well above 0.7%. A copy of the submission is available on the ABA website: www.bankers.asn.au For further information contact: Heather Wellard ABA PR Phone: 02 8298 041 Mobile: 0409 830 439 ENDS