The Australian Competition and Consumer Commission today issued a draft authorisation* decision rejecting a proposal by banks and others** to fix the wholesale fees for electronic funds transfer at point of sale (EFTPOS) transactions.
"The authorisation was presented as a means of reforming the EFTPOS system but omits addressing one key aspect necessary for EFTPOS reform that would be in the public interest, namely liberalisation of access to the EFTPOS network", ACCC Chairman, Mr Graeme Samuel, said today.
The ACCC considers that reform of the EFTPOS network is necessary in order to encourage competition and enhanced efficiency in the Australian payments system and notes that a package of reforms addressing access, wholesale fees and merchant pricing has recently been implemented by the Reserve Bank of Australia in relation to credit cards.
"The ACCC is concerned that the EFTPOS proposal addresses only one element of reform in this area – that is, the setting of wholesale fees. Without reforming access to the network and making it easier for new groups to enter and compete, consumers and small business may be disadvantaged by the proposal.
"A result of the proposed agreement would be that card issuers (financial institutions that provide EFTPOS cards to consumers) would no longer pay a wholesale fee to merchant acquirers (the financial institution that provides EFTPOS payment services to merchants).
"Under this proposal merchants are likely to experience higher EFTPOS service fees. The ACCC is concerned that without broader reform to the EFTPOS network this fee increase may not be determined by competition and some merchants, in particular small businesses, may suffer detriment.
"The ACCC is concerned that the proposed agreement is likely to increase the barriers faced by new entrants seeking to compete against the banks and other financial institutions in the EFTPOS network. It may also act to further entrench the already high level of concentration in the EFTPOS network (currently the four major banks issue about 70% of debit cards and provide about 85% of merchant services).
"The ACCC considers that without making it easier for new groups to enter and compete against the existing participants in the EFTPOS network, there would not be sufficient competition to ensure consumers would continue to receive the benefits of payment system reform, such as lower EFTPOS transaction fees.
"Accordingly, the ACCC was not satisfied that the proposed arrangement is likely to result in a net benefit to the public and is proposing to deny the authorisation. The ACCC considers that a proposal that included reform of access that would increase competition between banks in the EFTPOS network would be more likely to be in the public interest".
The ACCC encourages the EFTPOS industry to commit to developing suitable access arrangements and establishing an appropriate implementation timetable as a way forward and notes that the Reserve Bank has proposed a series of basic principles for access reform. This may be done through the current Australian Payments Clearing Association review of the Consumer Electronic Clearing System.
The ACCC is now particularly interested in hearing from the applicants and interested parties as to how its concerns may be addressed through appropriate access reform and has invited submissions on both the draft decision and the Reserve Bank's basic principles of access reform.
Draft determination and attachments (link removed as item has been retired)
* The Trade Practices Act 1974 prohibits certain forms of anti-competitive agreements, including agreements between competitors that limit their ability to deal with whom they choose or on the terms they choose (including price). Authorisation provides immunity from court action under the Act arising from such agreements but can only be granted where the ACCC is satisfied that the public benefit flowing from the conduct outweighs any public detriment.
** The applicants for authorisation are: Australia and New Zealand Banking Group, Australian Settlements Ltd, Bank of Queensland, Bank of Western Australia Ltd, Bendigo Bank, Cashcard Australia Ltd, Commonwealth Bank of Australia, Credit Union Services Corporation (Australia) Ltd, National Australia Bank, St. George Bank Ltd, Suncorp Metway Limited, and Westpac Banking Corporation.
Background
EFTPOS (Electronic Funds Transfer at Point of Sale) provides consumers with an electronic means of payment for goods and services at the point of sale.
In Australia each month approximately 63.8 million EFTPOS transactions are processed at a value of $4 billion. This compares with approximately 80.6 million credit card transactions per month at a value of $9 billion
Fees payable in respect of EFTPOS transactions
EFTPOS interchange fees are fees that the card holder's bank pays the retailer's bank for each debit card transaction accepted by the retailer. Currently these fees are set by bilateral negotiations between card issuers and merchant acquirers and on an aggregate basis amount to approximately $150 million per annum.
Fees payable in respect of EFTPOS transactions
Consumer's Bank
Wholesale (interchange) fees
Retailer's Bank
Consumers
Goods/Services
Merchants
The Joint Study
The significance of both debit and credit cards in Australia’s retail payments system has meant that they have both come under increasing scrutiny from network participants and industry regulators who have an interest in ensuring the overall efficiency of Australia’s payments system. For example, in October 2000 the Reserve Bank of Australia and the ACCC released Debit and Credit Card Schemes in Australia: A Study of Interchange Fees and Access (the Joint Study). The Joint Study broadly concluded that in the Australian credit and debit card networks competition is not working as it should.
In April 2001 the Reserve Bank began examining the credit card network in more detail and 'designated' the four party credit card schemes, making them subject to its regulation. As part of the designation process the Reserve Bank has recently introduced a package of reforms that establish:
a standard for the setting of interchange fees
a standard for merchant pricing of credit card purchases
a regime for access to the four party credit card schemes.
Following on from the credit card reform process members of the EFTPOS industry have sought to respond to some of the debit card network deficiencies that were identified by the Joint Study (for example applications for authorisation A30224 and A30225 in relation to the collective setting of EFTPOS wholesale fees).
Reserve Bank principles of EFTPOS access reform
The Reserve Bank has recently identified a series of basic principles that may provide a framework for EFTPOS access reform by way of amendment to the Australian Payments Clearing Association's (APCA) Consumer Electronic Clearing System (CECS). These principles are:
the CECS rules would provide the commercial basis for network access rights to all CECS members, including a positive obligation on the part of CECS members to engage in interchange activities with all other members
the CECS rules would incorporate all relevant commercial terms for interchange relationships, eliminating the need for bilateral interchange agreements on such matters
the CECS rules would provide rights to direct physical interchange links between CECS members, subject to appropriate efficiency-based criteria
APCA would establish a standard and transparent process for the establishment of new physical interchange links between CECS members, as well as for other operational steps required in establishing both direct as well as indirect interchange relationships
the technical requirements and procedures involved in establishing and operating direct physical interchange links would be further standardised through CECS rules
the CECS rules would establish a fair and transparent access fee, or methodology for allocating costs, for the establishment of direct physical interchange links between CECS members
APCA would establish and enforce deadlines for CECS members to meet their obligations under these access conditions
CECS membership categories would be reviewed to ensure they are sufficiently broad to allow all potential participants in the EFTPOS network to be afforded appropriate access rights.
