Credit Card Reform Runs Into Snags
Sydney Morning Herald
Wednesday August 22, 2001
The Reserve Bank of Australia's credit card reform agenda appears to be stalling amid new fears raised by smaller financial institutions about the unintended impact of any changes.
Australia's credit unions and building societies yesterday added a new twist to the increasingly muddied debate by asking the RBA to look at reforming interchange fees on EFTPOS transactions as well as credit cards.
The chief executive of the Australian Bankers' Association, Mr David Bell, said the RBA had to move carefully, given the possibility that lower interchange fees could actually result in higher costs to consumers for credit cards, contrary to the original rationale for reform.
When the RBA announced in April it had taken on the regulation of credit card schemes, it said it hoped to have its regulatory framework in place by the end of this year.
One bank executive said the RBA was struggling with the issues raised by credit card reform, which were complicated by a ruling earlier this month by the European Commission which appeared to support competitive aspects of the Visa scheme.
Mr Bell said the RBA had initially said it would release draft standards by July-August.
``It's been put back two or three times," he said. ``When we met them recently it was said it would be beyond October now. We don't have a problem with that."
Credit unions and building societies are particularly concerned about Visa debit cards, which they historically offered customers to give them access to their savings accounts in lieu of credit cards when they travelled overseas.
Visa debit card interchange fees are expected to be reformed because they are part of the Visa scheme, even though they do not involve the issue of credit.
``There's no justification for charging a credit card interchange rate on a debit card transaction," one bank executive said.
But because these smaller institutions are over-dependent on issuing Visa debit cards (the big banks mainly issue Visa credit cards instead), they may be disadvantaged if not compensated elsewhere.
Therefore, they want the RBA to extend its reforms to EFTPOS interchange, where consumers use debit cards for purchases.
Unlike anywhere else in the world, EFTPOS interchange works in reverse to credit card interchange, with card issuers paying the acquirer (or the merchant terminal owner) for every transaction.
Indirectly, part of the fee also goes to the major retailers, including Coles Myer and Woolworths. It is understood the banks pay about $50 million a year to the major retailers for their share of debit card interchange fees.
© 2001 Sydney Morning Herald
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