ACCC issues draft determination on ATM/EFTPOS transactions clearance rules

The Australian Competition and Consumer Commission has issued a draft determination proposing to authorise*, for a period of three years, the banking industry's draft rules for clearing ATM and EFTPOS transactions.

The Australian Payment Clearing Association sought authorisation of the proposed regulations and procedures for the Consumer Electronic Clearing System, which covers ATM and EFTPOS debit card transactions.

This is the second draft decision the ACCC has made in respect of APCA's proposed ATM and EFTPOS arrangements. In August 1997 the ACCC proposed to reject the-then draft arrangements, which it considered required further development and amendment. APCA subsequently revised the arrangements and resubmitted them to the ACCC.

The ACCC considers that the revised CECS arrangements, which will set minimum standards and procedures for participants in the ATM and EFTPOS networks, are likely to result in benefit the public by enhancing the security and integrity of the networks. The proposed arrangements are also likely to assist entry to the networks by ensuring that prospective participants are not required to meet more stringent and unjustified standards and procedures.

CECS members will collectively set the minimum standards and procedures for the ATM and EFTPOS networks. However, membership of CECS will not be required for an organisation to participate in the networks.

* Authorisation: Part IV of the Trade Practices Act prohibits anti-competitive practices, but the granting of authorisation provides immunity from court action for some arrangements that could otherwise breach the Act. To gain authorisation the applicant must satisfy the ACCC that the arrangements are likely to result in benefit to the public that outweighs the anti-competitive effect of the arrangements. The ACCC seeks information from interested parties, issues a draft determination that may be subject to a public conference, and a final determination (which may be appealed to the Australian Competition Tribunal).

Background

ATMs provide customers of financial intermediaries with an electronic means of withdrawing cash from their accounts, transferring funds between their own accounts and inquiring about their available balances. EFTPOS provides customers with an electronic payment mechanism for the supply of goods and services at a merchant's point of sale (many merchants also offer a 'cash out' service). There are usually four parties to an EFTPOS transaction:

• the Issuer who operates the account from which funds are withdrawn and who issues a transaction card to its customer
• the customer/cardholder who makes the payment using the card
• the merchant who exchanges goods or services for the customer's card details and consent to make the payment and
• the Acquirer who supports the merchant's participation in EFTPOS, pays the merchant and forwards the transaction to the Issuer for settlement.

There are three essential parties to an ATM cash withdrawal transaction – the Issuer, cardholder and the Acquirer/owner of the ATM who acquires the transaction and dispenses the cash.

Issuers and Acquirers provide the payment services in the ATM and EFTPOS networks. There is no central ownership of the networks. Issuers' cardholders are able to undertake debit card transactions through the ATM and EFTOS facilities owned or supported by individual Acquirers because of a series of bilateral interchange agreements (which facilitate the clearing or exchange of payment instructions, and the settlement of payment obligations) between the Issuers and Acquirers. Interchange fees are payable by Issuers to Acquirers in respect of ATM and EFTPOS debit card transactions. (The ACCC and Reserve Bank are currently conducting a joint study into both debit and credit card interchange fees.)

The bilateral interchange agreements, which include standards for ATM or EFTPOS facilities as well as clearing, settlement and interchange fee arrangements, form the core of the ATM and EFTPOS networks. For an organisation to participate in the ATM or EFTPOS networks as an Issuer it would need to enter into bilateral interchange agreements with the Acquirers in the networks, or enter into an arrangement with a 'gateway' Issuer that has bilateral interchange agreements with the Acquirers. Similarly, for an organisation to participate in these networks as an Acquirer it would need to enter into bilateral interchange agreements with the Issuers, or into an arrangement with a 'gateway' Acquirer that has such agreements with the Issuers.

Traditionally merchants have been end-users of the payment services provided by Acquirers in the EFTPOS network. However, should a merchant enter into interchange agreements with Issuers, or enter into a 'gateway' arrangement with an Acquirer that has such agreements with the Issuers, the merchant could provide its own acquiring services and be a direct participant in the EFTPOS network.

The object of CECS is to coordinate and manage standards and procedures to facilitate the conduct and settlement of exchanges of ATM and EFTPOS payment instructions between CECS Members and all aspects of the related clearing cycle.

These standards and procedures are set out in the CECS Manual and will be mandatory when CECS Members engage in the exchange of ATM or EFTPOS transactions with other CECS Members. However, any two CECS Members may agree to apply divergent standards and procedures, provided they satisfy the CECS Management Committee that the integrity, security or efficiency of CECS as a whole will not be lessened in any material way as a result. Although, no CECS Member may require any other Member or prospective Member to apply standards and procedures in ATM or EFTPOS interchanges other than those in the CECS Manual.

Thus, CECS is a forum in which its Members will agree on minimum mandatory standards and procedures for the interchange arrangements between themselves as Issuers or Acquirers in the ATM and EFTPOS networks.