Sydney, 24 February, 2005: The Australian Bankers’ Association (ABA) makes some initial comments (below) on today’s announcement from the Reserve Bank on payments systems reforms.

EFTPOS and Visa Debit
The ABA endorses the approach taken by the Reserve Bank to allow for differentiation in pricing between EFTPOS/debit and that of Visa Debit. These two products are different in cost-structure and it is appropriate this is recognised.

The process for setting the EFTPOS interchange fee is cumbersome and may significantly increase compliance costs. However, the foreshadowed reduction in current fee levels will mean EFTPOS users will receive benefits over time. The lower the fee, the better for customers.

On the Visa Debit interchange fee, the Reserve Bank’s estimate that it will fall to a maximum of 15 cents seems low, but the ABA does not have cost information available to comment in detail, nor can we easily understand the methodology outlined in the proposed standard.

American Express and Diners Club
The ABA endorses the approach of the Payments Systems Board (PSB) with respect to not regulating fees between banks and American Express and Diners Club.

Such a move would be very interventionist and would not improve efficiency or address the underlying issue.

Credit card interchange fees
The Reserve Bank’s announcement to review the pricing methodology of credit card interchange fees creates more uncertainty over the credit card business. Uncertainty over credit card interchange fees started in October 2000 with the publication of the ACCC/RBA Joint Study. The fact that it is still not settled demonstrates why regulators should seriously weigh up the costs before committing themselves to market intervention.

But the most important component of this review announcement is in the last sentence of the Reserve Bank’s media release where it strongly infers that it is looking to average interchange fees (or at the extreme, taking the lower limit) of the three credit schemes to derive a single benchmark. This means, by definition, that certain card schemes will be prohibited from recovering their incurred ‘eligible’ costs. The ABA notes that the period for submissions on this question is only six weeks.