Public policy and regulatory debates were a major feature of changing payments industry dynamics during the year. APCA was a committed participant in many debates, and the leader of some significant and long-term industry policy discussions.

The Reserve Bank (RBA) review of payment systems reforms
The RBA sought submissions on the review of its 2006 reforms and invited key stakeholders to a payments conference in November 2007 to engage with the industry. The RBA released its preliminary conclusions paper in April 2008, reflecting the submissions it had received and providing guidance on its views for the future regulation of Australia’s card payment systems. The RBA is expected to hand down its final conclusions at the end of September 2008.

APCA lodged submissions both to the initial phase of the review and in response to the preliminary conclusions. CEO, Chris Hamilton, was also invited to speak at the RBA’s payments conference. APCA’s submissions argued for the withdrawal by government from direct regulation of the payment systems, in particular interchange fee regulation, arguing that the promotion of competitive efficiency would achieve better long-term policy outcomes. Many other industry participants voiced similar views.

The RBA’s preliminary conclusions paper represents a major development, because the RBA expresses a preference for market-driven solutions and a willingness to step back from direct regulation on certain conditions.

The benefits and challenges of industry self-governance
APCA worked with fellow ICPACE members in publishing “Principles of Payments System Self-Governance” in November 2007. These five key Principles provide guidance on improving payment system governance arrangements through a co-regulatory partnership between industry participants and government regulators.

While the Principles are designed for use in many different payment systems, they proved particularly useful for facilitating industry debate on the design of the Australian governance structure in conjunction with the RBA’s review of its payment system reforms. APCA issued a white paper titled “Reinventing Co-regulation” to the industry on options for governance of the Australian payments system in February 2008.

Implementing ATM reforms
Following a request from the industry and the RBA in late August 2007, APCA has been implementing major reforms to the access and charging arrangements for the ATM system. The reforms are designed to increase competition and innovation in ATM services by ensuring fair access to ATM networks and clear price signals to ATM users. The reforms will become effective in March 2009. To ensure readiness, industry participants have been undertaking development work to accommodate the changes. 

Direct charging
Under the new ATM charging arrangements, the current system of ATM interchange fees will be replaced with direct charging by the owner of the ATM. New rules have been developed by APCA to ensure that the amount of the direct charge fee is disclosed to the cardholder and clearly visible on the ATM screen. The fee must also be shown at such a time that allows the cardholder to cancel the transaction, so as not to incur the charge. APCA is coordinating an industry-wide education program to inform cardholders of the impending changes. 

Joining the global migration to chip
The Chip Payments Programme for Australia was established in January 2008 with 21 “stakeholders” comprising financial institutions, major retailers and international card schemes. The Programme provides industry wide coordination and infrastructure for Australia’s migration from magnetic stripe to chip cards.

An early consensus emerged that a critical mass of issuers and acquirers in Australia will move to chip processing in order to support global interoperability, and that scheme and participant effort on this could be facilitated through some targeted industry coordination.

Through the collaborative efforts of stakeholders, work already delivered by the Programme includes industry guidelines on cardholder authentication and verification methods, chip fallback processing, and off-line declines; a new database to facilitate production environment validation; and a central repository for managing interoperability issues. As Australia’s migration to chip gathers pace in the coming year, the Programme’s priority is to focus on minimising risk of problems, failures and losses in the transition to chip, and ensuring the best possible customer experience for cardholders.

Helping customers make the switch
The industry had been working on implementing the account switching facilitation package agreed with Treasury in February 2008.

The package, which is aimed at improving competition, will make it easier for consumers to re-establish recurring payments, including direct debit and credit arrangements, when they switch their transaction account to another financial institution. From November 2008, when the package comes into effect, the old financial institution must provide the customer with a list of the direct debit and credit activity on the account over the past 13 months, and the new financial institution must be prepared to assist the customer in re-establishing these arrangements on the new account. Education materials for consumers, including generic guidelines on how to make switching easier, will be available on APCA’s website and from financial institutions, prior to the commencement date.

Promoting the EFTPOS system
Australia’s EFTPOS system is one of the most extensive, widely used systems of its kind in any developed country; however, no single entity has a mandate for its promotion and business development. Since EFTPOS was established in Australia, the major card schemes, particularly Visa and MasterCard, have experienced rapid growth and have demutualised and adopted a commercial governance structure.

In order to equip EFTPOS to compete in this changed card payments landscape, APCA has been working on options for a better business development framework to promote and develop the EFTPOS system. The objective is to ensure an efficient, competitive payments card system over the long term. APCA expects to establish an “EFTPOS Scheme” to operate the EFTPOS system by the end of 2008.

The challenging evolution of low value payments
In May 2008, APCA published an industry discussion paper inviting debate on the basic infrastructure that supports Australian commerce: “Low Value Payments: Challenges of Evolution”. There are around 9 million individual payments flowing through three main systems: cheques/paper instruments, direct entry (supporting electronic direct credits and debits) and BPAY. Growth is healthy, apart from cheques that continue their steady decline in volumes. Australia’s infrastructure is robust, adaptable and cost-efficient, but there are emerging challenges of technological change in underlying networks, increasing systemic risks and new customer demands.

A well-attended seminar debated the issues in June 2008, with a resulting industry direction roadmap planned for the coming year.