APPLICANT BANKS DISAPPOINTED BY THE AUSTRALIAN COMPETITION TRIBUNAL’S DECISION TO SUPPORT RETAILERS’ APPEAL ON EFTPOS INTERCHANGE

Sydney, 25 May, 2004: Applicant banks[1] are disappointed by the decision of the Australian Competition Tribunal to support the appeal by Coles Myer and other retailers to set aside the determination of the Australian Competition & Consumer Commission (ACCC) to reduce EFTPOS interchange to zero.

The applicant banks are surprised that the Tribunal has rejected the preferred interchange model advocated by the ACCC and Reserve Bank of Australia (RBA).

Allowing the EFTPOS interchange fee to fall to zero was an important component of the payment system reform agenda pursued by the ACCC and RBA since 2000. The aim of the agenda was to improve incentives by encouraging payments pricing that better reflected underlying costs.

It is important to recognise that the EFTPOS reform is part of a wider payment system reform program. Merchants are substantial beneficiaries from the credit card interchange reforms with savings more than outweighing any additional costs that may have eventuated from the EFTPOS reform.

The decision means that consumers are being denied the benefits of this reform. Banks will now read the Tribunal decision before considering the implications for the ACCC/RBA payments system reforms and any further actions.

Background notes for editors:

Information on EFTPOS Interchange

EFTPOS interchange fees are wholesale fees – they are not fees paid by cardholders or merchants, rather they are paid from issuing bank to acquiring bank. In fact, according to the RBA and ACCC, some large merchants “have had sufficient bargaining power with their acquirers to be able to share part of the interchange fee received from issuers.”[2]
Currently, EFTPOS interchange fees are negotiated bilaterally between financial institutions – the debit card issuer and the acquiring institution. The fees are a flat amount rather than a percentage value of the transaction.
EFTPOS interchange fees in Australia are paid by a debit card issuer (bank, building society or credit union) to an acquirer (a merchant’s financial institution or, if it has the necessary links to issuing financial institutions, the merchant itself) when a cardholder uses a debit card to make a purchase or withdraw cash from a merchant. The ACCC/RBA study found that the direction of interchange fees in Australia is unique.
The RBA has estimated that the total amount of EFTPOS interchange fees paid in Australia in 1999 was in the order of $100 million – between 18 and 25 cents per transaction.
The ACCC along with the RBA started the process to reform debit card systems in October 2000 when it found in the Joint Study that: “The study has not found a convincing case for an interchange fee in the debit card network in Australia…”

For further information:

Heather Wellard

ABA Public Relations

Phone: 02 8298 0411

Mobile: 0409 830 439

ENDS

[1] The parties to the original application for authorisation by the Australian Competition and Consumer Commission in February 2003 were: Australia and New Zealand Banking Group Limited, Australian Settlements Limited, Bank of Queensland Limited, Bank of Western Australia Limited, Bendigo Bank Limited, Cashcard Australia Limited, Commonwealth Bank of Australia, Credit Union Services Corporation (Australia) Limited, National Australia Bank Limited, St George Bank Limited, Suncorp-Metway Limited and Westpac Banking Corporation.

[2] ‘Debit and Credit Card Schemes in Australia – A Study of Interchange Fees and Access’ October 2000, RBA & ACCC Joint Study, October 2000, p63.