The Reserve Bank of Australia’s (RBA’s) Review of Payments System Reforms is in the home stretch. Consultation papers, submissions, conferences, preliminary conclusions, final conclusions and industry responses – now all we need is a decision.
Unfortunately, this marathon is likely to be down to the wire. The RBA has said it thinks competition amongst consumer payment instruments can work, but it is not sure. So, it adopted a checklist approach: if the industry can deliver on a list of structural steps aimed generally at enhancing payment instrument competition, RBA will remove interchange fee controls. In doing so, the RBA tied a reform it knew financial institutions generally wanted, to a range of structural steps it wanted, trying to construct a 'win-win'. Trouble is, many different things had to be done by many different parties, requiring some close coordination amongst organisations whose daily preoccupation is competing the hell out of each other.
A great deal of debate and negotiation has been going on, but the public announcements have been relatively few - understandable when delicate negotiations can be stymied by a premature disclosure. The members of APCA’s consumer electronic system have done their bit: they have established a business development company, EFTPOS Payments Australia, to engage in full-blooded competition with the international card schemes. The schemes are not sitting still, with both launching explicitly anti-EFTPOS advertising campaigns in the last few months.
This is all good competitive stuff, but what of the other things RBA was looking for: new online payment alternatives and some 'understanding' from the international schemes on future levels of interchange fees? We don’t yet know, but you can be sure a lot is going on behind the scenes.
If one is just looking at the boxes ticked on the checklist, then RBA hasn’t yet got everything it wanted. But that would be the wrong way to look at what is, after all, a simple yet fundamental question: can payment instruments be offered in a sustainably competitive environment or not? If yes, then the regulatory framework needs to be pro-competitive. That necessarily means moving away from fee controls.
There is a wealth of evidence of increasing competition in payment instruments. The simplest illustration is RBA’s own data on merchant surcharging, which shows consistent increases in the number of merchants surcharging (ie, exercising their right to influence payment instrument choices) in all merchant categories. All by itself, this is resolving the lack of price signals which was RBA’s primary policy motivation for fee controls.
The Payments System Board will, I am sure, factor in the macro, as well as the micro, when it makes its decision in August 2009.