AUSTRALIA HAS AMONGST THE LOWEST CREDIT CARD INTERCHANGE FEES IN THE WORLD, SAYS ABA SUBMISSION ABA Lodges Submission with Reserve Bank on Credit Card Reform Sydney, 3 July, 2001; The Australian Bankers' Association (ABA) has today lodged its submission to the Reserve Bank of Australia (RBA) for consideration in its inquiry into the possible regulation of credit card systems in Australia. ABA CEO, David Bell, says the submission makes the important point that Australia has amongst the lowest credit card interchange fees in the world. "The submission argues that any regulatory intervention in the credit card market should only be taken after serious consideration to the public interest and related tests, as specified under law, and must benefit bank customers and consumers generally," he said. Mr Bell said there are some serious misconceptions about the credit card industry in Australia. "Claims that lowering interchange fees will lower credit cardholder fees are not sustainable. That would, more likely, result in customers paying higher fees. There is also the perception that Australian credit card interchange fees are excessive, but as shown in the submission, this perception is difficult to justify. "In Australia, there are more than 10 million credit card holders. Credit cards provide a very convenient, safe and low-cost means of making purchases. It is critical that the system's integrity is maintained, including the importance of ensuring sound prudential standards. "The submission lodged today provides an important contribution for the Reserve Bank's deliberations. "The ABA continues to support the Reserve Bank's process and the submission makes constructive suggestions on how reforms to improve efficiency and transparency can be advanced without compromising the essential integrity and popularity of the credit card systems ", he said. Summary of ABA's position on the reform of credit card industry Australia has popular, secure and efficient credit card systems which are distinguished by low, not high, credit card interchange fees. Any intervention in the credit card market will have implications and, potentially, negative unintended consequences. This means the RBA must weigh up the potential costs and benefits of intervention very carefully, especially since it has designated for its inquiry only some of the credit card systems and not others. While RBA reform of the credit card market to make interchange fee setting more transparent may be supported by the ABA, the case for regulating the level of these fees as outlined in the RBA/ACCC Joint Study into debit and credit card systems in Australia has not been proven, as demonstrated by a series of reports from leading economists (see ABA web site: www.bankers.asn.au) and Chapter Three of the ABA's submission. If regulation of some of the arrangements within credit card systems is to proceed, then the Reserve Bank should give careful consideration to the issues and principles outlined in the banking industry's submission. T The core arguments of the industry submission are:                 ·         The RBA/ACCC Joint Study contains errors of fact and analysis. This must be addressed (ideally, well before the release of the formal RBA consultation document) in any decision concerning whether regulation is warranted. There is also a serious need to consider the competitive impact of regulating the 'open' schemes and not the 'closed' schemes. ·         In the event of RBA intervention, the ABA recommends a regulatory approach that would ensure interchange fee setting be transparent and efficient, but allow competition between different credit card schemes that may use different methodologies to derive their interchange fee. ·         The regulatory approach outlined by the ABA submission to achieve this aim is based on allowing the recovery of no more than the economic costs necessary to providing credit card payment services on a sustainable basis, and is consistent with economic efficiency. It would result in the identification of an interchange fee 'envelope' (i.e. an upper limit). Each credit card system could set its fees in its own way subject to that limit in competition with other systems. ·         Any regulation governing the credit card systems' rules for eligibility of organisations to participate must not compromise the safety, financial stability and sound governance of the systems. This submission is supported by the ANZ Bank, Bank of Queensland, BankWest, Bendigo Bank, Commonwealth Bank of Australia, National Australia Bank, Suncorp Metway, St.George and Westpac Banking Corporation. It was prepared with assistance from The Allen Consulting Group Pty Ltd and Gilbert and Tobin Lawyers. For Further Information Contact:   Heather Wellard ABA PR Phone: 02 8298 0411 Mobile: 0409 830 439   ENDS