The Reserve Bank's decision to focus narrowly on modifications to the interchange and surcharging rules in last week's review of card payment regulation was at odds with calls from the Financial System Inquiry and the payments industry to broaden the scope of its inquiry.The FSI said the increasingly complex nature of retail payments and the regular entry of new participants had resulted in regulation of the sector becoming fragmented.The inquiry supported the RBA's regulation of credit and debit card payment schemes, including the imposition of interchange fee caps, and it called for a ban on excessive surcharging. But it was concerned that differences in the structure of payments schemes had resulted in systems that performed similar functions being regulated differently, which may not be competitively neutral.It said advances in technology had reduced traditional barriers to market entry in payments. New entrants could leverage high levels of internet connectivity and other networks, as well as the penetration of smart devices to connect users to payments."Some submissions argue that firms performing similar functions should be regulated in the same way," it said.The RBA announced that fees paid to issuers of American Express companion cards would be regulated in a similar way to interchange fees. And it pointed out that it designated prepaid card systems last year.However, the industry was expecting that it would have something to say about Amex and Diners charge cards, and emerging payments systems such as PayPal and UnionPay.The RBA ruled out regulation of Amex proprietary cards (charge cards), said it would keep an eye on UnionPay and made no mention of PayPal.In a submission to the RBA last year, the Australian Payments Clearing Association said the RBA's narrow focus was based on a view that the market would continue to be largely composed of mature major card schemes that were viewed as a "must take" method of payment for merchants.APCA said: "We believe that this characterisation significantly understates the degree of change in the competitive dynamics of the market place and that the rate of change, innovation and competition is in fact increasing. "It is highly likely that the competitive dynamics of retail payments will be markedly different in three to five years time. Any changes made now to address specific concerns may have a short life expectancy."APCA is guiding the development of the New Payments Platform, which will introduce data-rich, real-time payments into the Australian market. The NPP will provide core infrastructure, leaving the development of service overlays to the market. APCA believes this "layered model" will create an environment for the development of innovative payment services. It is concerned that the RBA's narrow regulatory focus may stifle that innovation.The RBA rejected the argument that interchange regulation and lowering interchange fees would harm innovation."The evidence of the past decade and a half indicates that there has been very strong growth in card payments in Australia.  A comparison of the Australian payments system with other markets suggests that there is no shortage of innovation."A strong case can be