The Payment System Board is considering a tweak to the interchange rules that would lower the 15 cents cap that applies to debit card interchange when the fee is expressed in terms of cents.
Reserve Bank governor Philip Lowe said the Payments System Board had identified the issue during its review of retail payment regulation.
Speaking at an Australian Payments Network online event yesterday, Lowe said the PSB does not see a strong case for significant revision of the interchange rules.
However, it has identified large differences in interchange fees being paid on similar transactions, with unreasonably high fees on some low-value transactions.
Currently, a 20-basis point cap applies when a debit card interchange fee is expressed in percentage terms and a cap of 15 cents when the fee is expressed in cents.
Lowe said: “There has been an increasing tendency for interchange fees on transactions to be set at the 15 cent cap, particularly on transactions that are less at risk of being routed to another scheme.
“At the same time, the international schemes are setting much lower strategic rates for some merchants, particularly larger ones, in response to least cost routing. This is resulting in large differences in interchange fees being paid on similar transactions.
“For example, a 15 cent interchange fee on a $5 transaction is equivalent to an interchange rate of 300 basis points, which is far higher than would apply to that transaction if a credit card had been used.”
Another issue that has come up in the review is a recent trend where payment card issuers are moving away from dual network debit cards to single network cards, with no eftpos functionality.
“This may be partly in response to financial incentives from the international schemes and possibly the additional costs to issuers from supporting two networks on a card,” Lowe said.
“The board’s view is that it is in the public interest for dual network cards to continue and to be the main form of debit card issued in Australia. It is also important that acquirers and other payment providers offer or support least cost routing and that the schemes do not act in a way that inappropriately discourages merchants from adopting least cost routing.”
He said the PSB was considering setting out formal expectations in this area and would consider regulation if its expectations are not met.
A third issue the PSB review has been considering is the no-surcharge rules applied by buy now pay later companies. The board’s policy is that merchants have the right to apply surcharges.
However, it also accepts that a no-surcharge rule can play a role in developing a new payment method and the BNPL market has not yet reached the scale where costs arising from the no-surcharge rule outweigh the innovation benefits.
Lowe said the PSB did not have a view about the point at which the costs would outweigh the benefits and it would be consulting with the industry before setting any guidelines.