The Payments System Board’s preliminary conclusions from its review of retail payments regulation are heavily focused on measures the Reserve Bank may take to maintain and enhance dual-network debt card issuance and progress the rollout of least cost routing.
On Friday, the PSB released a consultation paper detailing its preliminary conclusions from the review. It makes very clear that the RBA will take steps to enhance and protect dual-network debit cards and least cost routing in the face of “emerging threats”.
The majority of debit cards in Australia are dual-network cards, which allow domestic debit payments to be processed via eftpos or one of the international debit networks, Mastercard and Visa.
Least cost routing allows merchants to choose the network they use for contactless payments.
The RBA’s view is that this choice can help merchants reduce their payment costs and increase competitive pressure between the payment networks.
“The average cost of accepting debit cards transactions has fallen as LCR functionality has been gradually rolled out over the past few years”
The RBA said it has observed a “a number of emerging threats to the viability of LCR”. These include card issuers issuing single-network debit cards.
“Some issuers may be choosing single-network cards in response to financial incentives from the debit schemes.
The board is proposing that the RBA “state an explicit expectation that the major banks will continue to issue dual-network debit cards, with both schemes to be provisioned in all form factors”.
In addition, the RBA interchange standards would be amended to set a lower cents-based interchange cap for single-network debit cards. This would limit the possibility of schemes using interchange rates to incentivise the use of single-network cards.
Another proposal is that all acquirers and payment facilitators will offer and promote LCR functionality to merchants in the device-present environment. The board is also keen to support the development of LCR in the device-not-present environment and it has set out some principles for market participants to follow.
The board does not see the need for explicit regulatory requirements in relation to LCR at this stage.
Another proposal is that the RBA explicitly prohibit schemes from engaging in “tying conduct” involving their debit and credit card product.
On the issue of interchange fees, which has been the most contentious aspect of retail payment regulation in the past, the board said there is no case for significant interchange reform.
“The current interchange settings have been in effect for only four years and appear to be working well,” the consultation paper says.
One concern is the tendency for interchange fees on certain debit transactions at smaller merchants to be set at the cents-based cap, which can result in high costs for low-value transactions.
To address this the board is proposing to reduce the cents-based interchange cap from 15 cents to 10 cents for dual-network debit card transactions and 6 cents for single-network debit card transactions.
On the issue of scheme fees (fees paid by acquirers and issuers to the card schemes), the board wants better disclosure and is proposing that schemes would be required to give the RBA access to their scheme fee schedules and all scheme rules, and to notify the RBA of any changes.
The board is not proposing any change to surcharging rules. In particular, it does not see the need to require buy now pay later providers to remove their no-surcharge rules.
However, it put the BNPL sector on notice that the situation could change. “A policy case could emerge in the future and the board will keep this issue under review.”
The board said that broader questions about whether the regulatory architecture remains appropriate, given the emergence of payment gateways, mobile wallet providers, BNPL services and cryptocurrency, were not addressed because they are being considered in Treasury’s Review of the Australia Payments System.