APCA played a pivotal role in co-ordinating the industry effort to establish EFTPOS Payments Australia Limited. This new company has commercial responsibility for managing and promoting EFTPOS.

EFTPOS is Australia’s PIN-based debit card system. It is mainly used by consumers to pay for purchases and withdraw extra cash from their savings and cheque accounts at merchant terminals. EFTPOS is separate from the card payment systems owned and operated by the international card schemes (for example Visa and MasterCard).

As with all of its clearing systems, APCA has a role to provide coordination and support for the technical standards, security and operational processing of EFTPOS. Up till now, however, no single entity has been responsible for the system’s promotion.

To ensure EFTPOS remains viable over the long-term, the industry began work on enhancing the system’s governance structure in late 2007. The Reserve Bank of Australia was supportive of this initiative, making the observation in its Conclusions of the 2007/08 Review (September 2008) that the EFTPOS system was at a disadvantage when competing with international card schemes because of its governance arrangements. Subsequently, in April 2009, the industry agreed to set up a new company with a clear decision-making structure and a commercial focus to strengthen the competiveness of EFTPOS.

EFTPOS Payments Australia has 14 initial members: Australia and New Zealand Banking Group Limited, Australian Settlements Limited, Bank of Queensland, Bendigo and Adelaide Bank, Cashcard, Citigroup, Commonwealth Bank of Australia, Coles Group, Cuscal, Indue, National Australia Bank, Suncorp-Metway, Westpac Banking Corporation and Woolworths. It operates independently from APCA and has its own board and management team.

APCA is providing transitional support to the company during its establishment phase.

MasterCard Europe and European Commission reach understanding on interchange fees

MasterCard Europe and the European Commission announced they had reached an understanding on cross-border interchange fees, to be effective 1 July 2009.

As part of the understanding, MasterCard Europe announced that its intra-European Economic Area cross-border interchange fees would be no more than 30 basis points for credit cards and 20 basis points for debit cards.

The opening remarks from the press conference by Neelie Kroes, European Commissioner for Competition Policy, can be found here. MasterCard Europe’s own media release can be found here.

On 22 May 2009, US President Barack Obama signed the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. This legislation introduces a number of consumer protection measures including:

 •  Prohibiting certain fee and interest charge practices
 •  Restricting new credit card solicitations to persons under the age of 21
 •  Restricting 'dormancy fees' on gift cards without clear disclosures being made on the card

Most of the provisions are not in effect until early 2010. The full text of the Act signed by President Obama can be found here.

The Canadian Payments Association (CPA) has released its draft long-term strategy for comment. The draft strategy, called Vision 2020, sets out a series of broad strategies for both the CPA and the Canadian payments system. The CPA outlines a 'four-point' payment strategy including promoting electronic payments; driving domestic and international interoperability standards; modernising CPA’s enabling framework and systems; and delivering value-added services to CPA members.

The CPA has also released three companion research/benchmarking papers. These are on payment association governance, funding and membership; core payment systems; and international interoperability standards.

The draft strategy and companion research/benchmarking papers are available on the CPA website.

The Card Payments Forum has launched www.cardpaymentsforum.com.au to provide information about the Forum and its meetings to broader participants in the card payments system.

The Card Payments Forum was established in August 2008 to promote industry debate on efficiency and competitiveness in the Australian payment card markets. It brings together key stakeholders in the card payments system including financial institutions, merchants, card schemes, consumer groups and industry associations.

The Forum’s most recent meeting was held on 27 March 2009, chaired by Professor Ian Harper. 37 participants from 23 organisations met to build on areas of interest identified at the Forum’s inaugural meeting in October 2008. Additionally, Reserve Bank of Australia executives Dr Lowe, Dr Edey and Ms Bullock attended the morning session to take part in discussion about innovation in the payments system. A communique of the meeting is available on the new website as well as other information and resources including:

 •  research commissioned by the Forum
 •  agendas and presentations
 •  general information about the Forum

The next Forum meeting will be held in September 2009. Click here to visit the new Forum website.

Innovation in consumer payments is a key issue for both industry and regulator. The need for further innovation featured prominently in the speech given by Reserve Bank Governor Glenn Stevens on 25 March 2009.

Innovation has also been identified by industry stakeholders as a key challenge for industry at the Card Payments Forum.

The first Card Payments Forum meeting in October 2008 noted the need for further research on innovation. In response, APCA commissioned Edgar Dunn to undertake research that examined payments innovation in Australia – in particular how we compare internationally and what are the barriers to further innovation. The research was presented at the Card Payments Forum meeting held on 27 March 2009 and is available on the Card Payments Forum website.

The Edgar Dunn research found that the Australian public was well served by current payment offerings. Australian consumers were highly banked and had lots of payment choices available. There was no overt customer demand for innovation (other than in mass transit) and, as a result, no 'obvious' gap between what consumers wanted and what was available.

Though the research findings identified Australians as generally content, in his presentation to the Card Payments Forum, Edgar Dunn CEO Lance Blockley, quoted Henry Ford, the automobile magnate, who said “If I’d asked people what they wanted, they’d have said a faster horse.” Carrying on the analogy, Mr Blockley highlighted that consumer payments, like the automobile, have remained essentially the same over a long period of time, though technology has radically improved efficiency and safety.

In this context, the Edgar Dunn research distinguished between different types of innovation – product versus systemic and incremental versus step change. Indeed, defining what one means by 'innovation' is often part of the challenge in having a constructive dialogue.

The Edgar Dunn research found the current Australian environment was more conducive to incremental rather than step change innovation. As well product innovation was generally easier than systemic innovation.

Systemic innovation was often challenging due to the numerous players involved and the challenge of building a clear business case within each organisation. The Edgar Dunn research identified the following pre-conditions as assisting in working towards systemic change:

 •  Consistent regulatory framework
 •  Government incentives
 •  Financial incentives/certainty for providers of payment services
 •  Completion of current core banking system upgrades

The Edgar Dunn research remained optimistic about Australia and innovation. It noted it is hard to argue that Australia does not have a competitive and modern retail payments system, with consumers well served and spoilt for choice. However, further systemic innovation remained an outstanding challenge requiring significant commitment from both industry and Government.

In a speech given on 25 March 2009, the then Minister for Human Services, Senator the Hon Joe Ludwig made two major announcements.

The then Minister confirmed the continuation of the BasicCard, the EFTPOS-based card being used to deliver the income management aspect of the Australian Government’s policy response to social problems in indigenous communities in the Northern Territory. The then Minister declared the BasicsCard a “success overall” and announced that the Government would be going to tender on delivery of the program in the near future. He also noted that the current form of income management could change in the future as well.

The call for tenders on providing BasicsCard was announced by the Minister on 29 May 2009.

In his March speech, the then Minister also announced that the Government would be releasing a discussion paper later this year on the Government’s payment strategy. He indicated a preference for a pragmatic and modular approach to payments and emphasised the importance of an open and ongoing dialogue with industry going forward.

The then Minister’s 25 March 2009 speech can be found here.

The 29 May 2009 media release announcing the BasicsCard tender can be found here.

In early June 2009, the Hon Chris Bowen MP became Minister for Human Services. There has been no indication that the Government intends to change or reverse the above decisions.

On 3 March 2009, ATM direct charging was introduced across Australia. These changes were designed to achieve a number of policy objectives including:

 •  Increased number of ATMs
 •  Fee Transparency
 •  Competition

Though early days, what do the preliminary APCA and Reserve Bank of Australia (RBA) figures say about the progress of changes against these objectives?

APCA figures on the number of ATMs in Australia shows a 6.7 % annual increase, from 25,599 (March 2008) to 27,306 (March 2009). This represents the most significant March to March annual increase over the past four year period. One plausible explanation for this increase is in anticipation of the introduction of ATM direct charging however, this would require further analysis.

Source: APCA Statistics >>

Recent RBA figures strongly suggest consumers are responding to the changing price signals introduced under direct charging.

The most noticeable change has been the shift towards the use of own ATMs. In recent years, own ATM transaction volume as a percentage of overall ATM transactions has consistently been around 52%. In March 2009, this figure rose dramatically to 60%, though settled back to 58.6% in April. Similarly own ATM transaction value as a percentage of overall ATM value rose from just below 60% to 65.8% in March. However, in April this value dropped back slightly to 64%.

Given the stability of these monthly figures in recent years, the strong shift in the March and April 2009 figures suggests consumers are responding to the new price signals and changing their behaviour accordingly.

Source: RBA Statistics >>

The recent increases in the number of ATMs, as well as changing consumer usage of ATMs, suggests direct charging is already having an impact. These very early signs are pointing in the right direction of increased number of machines and consumers responding to price signals. However the long term impact of direct charging on competition still remains to be seen.

APCA’s latest release of payments fraud data for the year 2008 shows that while Australia’s total rate of fraud remains low by global standards, it has risen from 6.3 cents (2007) to 8.2 cents for every $1,000 of payments.

Further comparison shows that:

 •  Cheque fraud has remained relatively steady, increasing from 0.8 of a cent (2007) to 0.9 of a cent in every $1,000.
 •  Debit card fraud (that is, EFTPOS and ATM) decreased slightly from 7.2 cents (2007) to 6.6 cents in every $1,000.
 •  Credit and charge card fraud (that is, signature permitted and card-not-present) increased from 44.7 cents (2007) to 53.2 cents in every $1,000.

Despite the increase in credit and charge card fraud, Australia’s total payment card fraud rate remains relatively low when compared to other countries. At 32 cents in every $1,000, Australia’s debit card, credit card and charge card fraud rate is about a quarter of the UK’s which is the equivalent $1.20 in every $1,000.

The increase in credit and charge card fraud was driven by increases in Card-not-present (CNP) fraud and Counterfeit/Skimming, which continued to trend upward in 2008.

Industry measures to tackle CNP fraud include the implementation of enhanced data security standards for computer systems and encrypted data links. Financial institutions and card schemes are also working with merchants to implement an added layer of security for online transactions to better verify the cardholder’s identity through measures such as MasterCard SecureCode and Verified by Visa.

Australia’s best defence against counterfeit cards is to join the international move to fraud resistant chip cards and chip reading terminals. Within the next three years the vast majority of consumer card transactions in Australia will use chip-based authentication.

In addition to industry-wide initiatives, financial institutions make unceasing efforts in detecting and shutting down fraud attempts. Nonetheless, successful fraud prevention comes from sustained effort at multiple levels – industry, financial institution, merchant and consumer.

Consumers can do simple things such as keeping the pinpad covered when entering a PIN and staying alert for anything suspicious when using ATMs and other devices. Merchants can also play an important part by checking that the card hasn’t been tampered with and taking extra steps to verify the cardholder’s identity when accepting payments over the phone or internet.

Click here for APCA’s fraud data collection.