Regulation and Innovation in the Australian Payments System

Transcription

1 Regulation and Innovation in the Australian Payments System Darren Flood Deputy Head of Payments Policy Department Reserve Bank of Australia Address to the Modernisation of Retail Payment Methods in Chile Seminar 3 April 2013

2 Topics 1. Australian approach to regulation of retail payment systems regulatory tools 2. Innovation in the payments system 3. Lessons from the past decade

3 1. Retail Payments Regulation

4 Australian Card Payments Credit/Charge Cards Four Party MasterCard Visa Debit Cards Four Party MasterCard Visa EFTPOS (domestic)

5 Australian Card Payments Credit/Charge Cards Four Party MasterCard Visa Debit Cards Four Party MasterCard Visa EFTPOS (domestic) Acquirers: 14 mostly financial institutions plus one specialist acquirer Issuers: mostly financial institutions plus one specialist issuer

6 Australian Card Payments Credit/Charge Cards Four Party MasterCard Visa Debit Cards Four Party MasterCard Visa EFTPOS (domestic) Three Party American Express Diners Club

7 Regulatory Measures for Cards Removed no surcharge rules Increased transparency Capped interchange fees Removed honour all cards rules Opened access to encourage competition

8 % Merchants Surcharging Credit Cards Per cent of surveyed merchants in June and December % Large merchants Small merchants Very large merchants Very small merchants Source: East & Partners Australian Merchant Acquiring & Cards Market program

9 % Composition of Number of ATM Withdrawals Per cent of domestic withdrawals, seasonally adjusted % 60 Own Foreign Source: RBA

10 Fee Flows in a Credit Card Transaction Card Issuer Interchange fee Merchant s financial institution Card fees (and interest payments) Merchant service fee Cardholder Merchant

11 Interchange Fees on a $100 Payment Excluding GST Merchant s bank Cardholder s bank Credit cards Scheme debit $ Source: RBA eftpos Pre-reform Post-reform Current (eftpos)

12 Scheme Predictions A self-reinforcing cycle could be set in motion that could eventually lead to the whole open system unraveling: interchange fees set too low, leading to issuers charging higher fees to cardholders, leading to diminished cardholders network, leading to fewer merchants acquired, leading to the need to further lowering of the interchange fee, and so on. This could be characterized as a death spiral process. MasterCard Submission to Reserve Bank of Australia, June 2001

13 Benefits of Card Reforms Improved price signals to consumers Reduced costs to merchants leading to a reduction in prices to consumers Reduced the cost of the payments system overall Removed the need for cross-subsidies between users of different payment methods Gave merchants tools to help them negotiate with acquirers and schemes e.g. threat to surcharge or stop accepting debit

14 Value of Credit Card Rewards Year Average spending required for $100 voucher Benefit to cardholder as a proportion of spending (%) 2003 $ $ $ $ $ $ $ $ $ $

15 % Merchant Service Fees Per cent of transaction values acquired American Express and Diners Club % MasterCard and Visa Source: RBA Average interchange fee

16 Value of Card Payments Year-on-year growth % % Credit Debit Sources: BPAY; RBA

17 % Credit Cards Value of card payments, year-on-year growth % Australia G7 countries Sources: BIS; RBA

18 2. Payments Innovation

19 Gaps in Australian Payments System Faster retail payments particularly availability of funds Availability of retail payments out of normal business hours availability of funds Ability to send additional information with a payment current restriction of 18 characters Easier addressing of payments currently 6 digit bank identifier and 9 digit account numbers mobile number or address?

20 3. Lessons 1. Do not underestimate significance of interchange fees compromise efficiency in mature systems 2. Merchant surcharging is a very effective tool for improving competition and efficiency 3. There should always be a presumption in favour of greater access to payment systems 4. Be conscious of the implications of retail innovations for competition 5. Cooperative innovation is challenging the authorities may need to facilitate

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22 No Non-cash Payments per Capita Financial year No 120 Debit cards Credit cards Direct credits 60 Direct debits 30 Cheques BPAY Sources: ABS; APCA; BPAY; RBA

23 % Market Shares of Card Schemes Value of credit and charge card purchases MasterCard and Visa % % American Express and Diners Club % Source: RBA