Reviewing Australia’s Payments
System Reforms –
A Progress Report
Cards & Payments Australasia
Sydney
11 March 2008
Michele Bullock
Reserve Bank of Australia
Overview
‰ The review process
‰ Input to the review
– consultation
– use of payment instruments
– costs
‰ The regulation debate
‰ ATM reform
The Review Process
‰ Commitment from 2002
‰ Launched with Issues Paper, May 2007
‰ Conference, November 2007
‰ Consultation document, April 2008
The Consultation Process
‰ Interchange regulation most contentious
‰ Three broad positions
– continue regulation
– remove all regulation
– remove interchange regulation
‰ Self-regulation?
Use of Payment Instruments
‰ Diary study
‰ Focus on consumers
‰ First reading on use of cash
Payment Share by Number
BPAYOther
Cheque
Credit
Scheme debit
EFTPOS
Cash
Payment Share by Value
Other
BPAY
Cheque
Scheme debit
Cash
Credit
EFTPOS
Scheme debit
EFTPOS
Use of Cash
Per cent of number of payments
%
„ Cash
„ Other methods
%
80
80
60
60
40
40
20
20
0
0-10
11-25
26-50
51-75
76-100 101-150 151-200 201-500
Payment value ($)
500+
0
Median Payment Values
Scheme debit
Cash
0
EFTPOS
20
40
Personal cheque
BPAY
Credit
60
Transaction value
80
100
Cost of Payments
‰ Relevance to policy
‰ Joint study, 2000
‰ Updated study, 2006/07
Aggregate Costs of Payments
by Individuals
‰ Around 0.8 per cent of GDP
Merchants
Financial institution
account overhead
costs
Financial institution
direct payment costs
Total Payment Costs*
Per average transaction for each payment method
$
$
1.20
1.20
Consumer
1.00
0.80
1.00
0.80
Merchant
0.60
0.40
0.60
0.40
Financial
institution**
0.20
0
0.20
Credit card
EFTPOS
* Resource costs excluding account overhead costs
** Including costs of currency production for cash
Cash
0
The Regulation Debate
‰ What is the market failure?
‰ Have the reforms met their objectives?
‰ Are there alternatives to interchange
regulation by RBA?
– removal of restrictions
– self-regulation
Removal of Restrictions
‰ Surcharging increasing
Merchants Surcharging Credit Cards
Per cent of surveyed merchants
%
%
20
20
Very large merchants
16
16
Large
merchants
12
12
8
8
Small merchants
4
4
Very small merchants
0
Jun
Dec
2005
Source: East & Partners
Jun
Dec
2006
Jun
Dec
2007
0
Merchants Planning to Apply a Surcharge
Per cent of surveyed merchants
%
%
30
30
Very large merchants
Large
merchants
20
20
Small merchants
10
10
Very small merchants
0
Jun
Dec
2005
Source: East & Partners
Jun
Dec
2006
Jun
Dec
2007
0
Removal of Restrictions
‰ Surcharging increasing
BUT
‰ Surcharging difficult at point of sale
‰ Pressure on interchange fees still up
‰ Removal of further restrictions?
Self-regulation
‰ Nothing concrete yet
‰ Would schemes be part of it?
‰ Would it include ‘self-regulation’ of
interchange fees?
‰ How to bind participants?
‰ How to include various stakeholders?
ATMs
‰ Process underway
‰ Board’s preferred date October 2008
‰ Industry targeting March 2009
Potential Advantages of
New System
‰ Competition between ATM operators
‰ Transparent pricing to consumers
‰ ATMs at more costly locations
‰ Foreign ATM fees disappear?
Foreign ATM Fee at Four Largest Banks*
$
$
2.0
2.0
Average foreign ATM fee
1.5
1.5
1.0
1.0
Indicative interchange fee
0.5
0.0
0.5
2000
2002
2004
2006
*Simple average of foreign fees on main transaction account at each bank
Sources: Cannex; RBA calculations
2008
0.0