Following the 1996-97 Wallis Financial System Inquiry, the Reserve Bank of Australia was given new powers with regard to the payment system. Through regulatory intervention and caps on interchange fees, the Australian retailers and ultimately consumers saved in 2014 an estimated $5 billion in banking fees on $510 billion in card payments1. The reforms have also enabled the one and only new entrant into the Australian core payment system, Tyro Payments.
The regulatory goal was and remains to provide Australians with a financially safe, efficient and competitive payment system. The reforms sought to restrain abuses of the collective setting of bank interchange fees, to allow retailers surcharging of actual costs and to eliminate access barriers for new entrants.
The big banks, however, have achieved to protect their turf by undermining very effectively these goals:
- The banks gamed the interchange fee regulation and the surcharging rights by massively proliferating the payment card products from 11 different card products (2003) to 72 (2015). The resulting complexity allowed them to massively overcharge interchange fees between each three-year regulatory reset, to charge the small-to-medium businesses hundreds of millions more than the big retailers and to make specific surcharging of expensive cards impossible for Australia’s retailers. Transparency and fairness are gone.
- The banks gamed the access regulation by restricting access to the domestic payment system to banks only. What they called EFTPOS access regime is broken and access to the new payment platform that is currently under construction does not look better. As a result, any non-bank payment provider, innovator and new entrant is at the mercy of his bank competitors. Innovation from new entrants in the core banking space is stifled.
In 2014, the David Murray Financial System Inquiry rightly required a renewed effort. While initially Australia had been leading the regulatory reform agenda, jurisdictions in other countries have taken the lead. Eight EU countries, Canada and New Zealand achieve high card issuance and acceptance with very low or zero debit interchange fees. The EU is about to extend its 0.2% to 0.3% interchange cap to all credit and debit card transactions across the European Economic Area.
On 4 March 2015, the Reserve Bank of Australia has initiated a review of the card payment regulation. Tyro Payments will submit on behalf of Australia’s small-to-medium businesses and on behalf of all the new financial technology startups and high growth businesses that could be possible, if the big banks were forced to open up and allow level playing field competition.
1 RBA estimate comparing implied US and actual Australian merchant service fee – Review of card payments regulation, March 2015, footnote 23