No news is pretty good news, or so most of the industry thinks.

In July 2009’s Monitor, I was anticipating the Payments System Board’s (PSB) final decision on the long-running card interchange fee saga, due in August 2009. As it turned out, we didn’t quite get one. APCA had argued for deregulation of interchange fees, along with most financial institutions, on the basis that competitive forces could and should be allowed to take over. The alternative was tighter price controls, if the PSB formed the view that competition in consumer payments would never operate to constrain interchange fees.

The PSB did not feel that there was sufficient competition in consumer payments to step back from interchange fee regulation, and it was not happy with the voluntary undertakings offered by the international schemes on credit card interchange. On the other hand, it recognised industry efforts towards increasing competition amongst retail payment instruments. So, it adopted a middle path: wait and see. Existing regulation stays in place, pending later review when the market evolution becomes clearer. In the meantime, the Reserve Bank has flagged the need for a little more tinkering to align the regulatory treatment of EFTPOS with international scheme debit.

That is all reasonable, and measured. But I can’t help feeling it’s a shame this debate is now to drag on for a further, unspecified period. The zero sum nature of the interchange fee debate is a source of divisiveness, even rancour, in industry dialogue. When it comes to interchange fees, issuer’s loss is acquirer’s (and usually merchant’s) gain, and vice versa. Policy positions are polarised, driven by the hip pocket nerve. Any extension of the debate on card interchange fees therefore has the potential to distract the industry from building consensus and moving on with broad system improvement that is in everyone’s interest.

EFTPOS Payments Australia Limited (EPAL), the new business development scheme for the EFTPOS network, is one important venue for potential future system improvement. Around that board table are representatives of financial institutions and big merchants as well as independent directors. I imagine debate is lively – but directors of all stripes are jointly committed to the health and growth of the EFTPOS system, and that is a great place to start. I wish them well.

Another, broader venue for industry debate is the Card Payments Forum, now just three meetings old. I am delighted with the willingness of senior, busy people from all facets of card payments to meet together, talk to and hear from the Reserve Bank as a group, and generally look for the common interest, rather than the source of division. So far, the debate had been lively, albeit the consensus modest. For example, there is recognition that fraud prevention is an industry priority, to which we will devote the next forum. It is my hope that if we can over time build a way of working together as an industry, this will be of great use in addressing future systemic challenges.

Moving from payment cards to electronic payments, there is even more promising emergent consensus, based on the Low Value Payments Roadmap (available on apca.com.au). With Telstra’s help, a new industry communications network has been established – the 'COIN' or Community of Interest Network. You can read about it and other developments in APCA’s Annual Review for 2009, just published on our website. I hope you find it useful.

The third Card Payments Forum meeting was held in Sydney on 21 September 2009. Chaired by Professor Ian Harper, the meeting was attended by 38 senior executives from 24 organisations participating in the card payments system including merchants, financial institutions, card schemes and industry associations.

For the first part of the meeting, participants focused on the Reserve Bank of Australia’s (RBA) recent decision on interchange fee regulation. Invited speakers from the RBA, Assistant Governor Dr Malcolm Edey and Head of Payments Policy Ms Michele Bullock expanded on the Payments System Board’s decision to maintain interchange fee regulation at current levels pending further competitive developments. Dr Edey said the decision represented a deferral of the choice between two regulatory alternatives outlined in the RBA’s September 2008 Conclusions. It was based on recognition of industry effort to meet prerequisites identified by the RBA, along with continuing concern that competitive pressures on interchange fees were not yet sufficient to dispense with regulation.

This session was followed with a presentation by APCA on the key findings of a survey it conducted in August 2009. The survey explored Forum participants’ views on priorities for future collaboration to improve the card payments system. A key issue for many respondents was industry-wide approaches to fraud prevention. While the Forum recognised that effective fraud prevention work was already going on across card schemes and other industry groups, it was agreed that there may be opportunities for the Forum to further support and enhance this work. This will be a focus for next Forum meeting to be held in March 2010.

For further information on the September 2009 Card Payments Forum including the survey of priorities, please go to www.cardpaymentsforum.com.au.

One of APCA’s major initiatives for 2009 and beyond is development of the Community of Interest Network (COIN). The COIN is an industry-based response to the impending 'end-of-life' for existing x-25 based connectivity supporting the cheque, direct entry and card payment systems. (See First Quarter 2009 Payments Monitor.)

There are two major components of APCA’s work associated with the COIN. One is the development of the governance arrangements, procedures and rules including membership eligibility criteria and technical operating rules. The other is the migration of member traffic from their old physical connectivity to the COIN. Work on both is well underway.

Seven institutions comprising banks, non-bank service providers and payments processers, have already joined the COIN and at least another seven are expected to join in the coming months. APCA is working with stakeholders through a series of industry workshops, a COIN Management Committee, a migration project Steering Committee and Working Group to formalise migration plans, to help manage the transition and to provide ongoing management of the COIN Infrastructure System. Migration of live payments traffic to the COIN has commenced with completion expected in 2011-2012.

For further information on the COIN email rmagee@apca.com.au.

RBA Discussion Paper and Draft Standard

The Reserve Bank of Australia (RBA) released a proposed change to the regulation of EFTPOS interchange fees in September 2009. The proposal is to regulate EFTPOS interchange fees, currently a band of between 4 to 5 cents to the acquirer, with that currently applying to scheme debit, notably a cap of 12 cents to the issuer. No actual change to EFTPOS interchange fees is proposed, merely the regulatory framework. As noted by the RBA, “the change does not imply that interchange fees in the different systems should be equal, only that they are subject to equivalent regulation”. The draft Standard and a consultation paper can be found at www.rba.gov.au.

On 23 October 2009, APCA made a submission to the RBA on the proposed changes. The APCA submission broadly supported the principle of regulatory parity contained within the RBA proposal, though APCA maintains its general view that interchange fee regulation inhibits rather than promotes competitive efficiency within the Australian payments system, and should eventually be removed. The APCA submission also raised a number of issues concerning the current bilateral nature of EFTPOS interchange fees arrangements that the regulator needed to be mindful of in finalising its regulatory response.

The APCA submission is available at www.apca.com.au.

Department of Human Services Discussion Paper released for comment

On 14 September 2009, the Minister for Human Services, Chris Bowen MP, released the Better Dealings with Government: Innovation in Payments and Information Services Discussion Paper.

As noted in the Paper’s FAQ - “The purpose of this discussion paper is to invite comment from industry on innovative ways of delivering government payments and collecting and sharing required information such as customer change of address. Feedback will inform the Government’s thinking about how to improve future payment and information services in the Human Services Portfolio.” The Human Services Portfolio includes both Centrelink and Medicare, and is a major user of the direct entry system, cheques and, increasingly, cards.

The Discussion Paper and related material can be found at www.humanservices.gov.au.

Submissions to the Discussion Paper are due on Friday 30 October 2009.

Inquiry into cybercrime

APCA lodged a submission with the House Standing Committee on Communications inquiry into the nature and incidence of cybercrime in Australia on 21 August 2009.

The terms of reference for the inquiry were wide, looking at the nature and instances of crime perpetrated on-line. APCA’s submission welcomed the inquiry and noted that the payments industry was actively engaged in fraud prevention measures, including on-line card fraud in the form of card not present fraud. APCA noted the importance of its publication of fraud data in order to promote efficient fraud prevention efforts.

APCA expressed the view that the inquiry needed to consider how to promote better understanding of cybercrime through identification of other cybercrime typologies, and, having established this, investigate ways to prevent this type of fraud. It was suggested that such measures would be enhanced by the collection of accurate data.

APCA subsequently appeared at a Senate Hearing to answer questions on APCA’s fraud prevention activities.

More information about the Inquiry including submissions and transcripts can be found here.

New Zealand Commerce Commission agreement with card schemes

Visa and MasterCard have made separate agreements with the New Zealand Commerce Commission on credit card interchange fees and related practices in August 2009.

In the agreements, the international card schemes have agreed to i) enable issuers to set their own interchange fees below a cap determined by the scheme, ii) permit merchant surcharging and iii) enable non-bank entities to offer acquiring services, provided they meet relevant criteria.

More information, including the Visa and MasterCard agreement media releases, can be found at www.comcom.govt.nz.

Canadian Senate Inquiry into Credit and Debit Card Regulation

The Canadian Senate Standing Committee on Banking, Trade and Commerce released its report on credit card and debit card regulation in June 2009. The report included a number of recommendations including the creation of a Federal Government 'oversight body' that would:

 •  further consult on issues such as credit card interchange fees;
 •  permit merchant 'collective bargaining' on interchange fees, merchant surcharging and prohibiting
    'honour-all-card' rules;
 •  set debit card interchange fees at zero; and
 •  require issuers to provide additional information on monthly credit card statements.

The Report can be found at www.parl.gs.ca.

United Kingdom Transport Card White Paper

The UK Department for Transport has released a White Paper on a national 'smart and integrated' transport ticketing system. The paper summarises current ticketing initiatives throughout the UK (including the highly successful 'Oyster' card) and proposes a national standards-based approach to ticketing that would leverage of emerging contactless EMV card and NFC mobile technologies.

The White Paper can be found at www.dft.gov.uk.

APCA has developed a brochure for customers and new materials for financial institutions to improve the understanding of how direct debit payments work.

The direct entry system is one of Australia’s most widely used payment methods. There are more than 2.2 million direct debit transactions totalling around $16.6 billion made each business day. While the system is simple and convenient to use, there was opportunity to clarify the rules and obligations associated with Direct Debit Requests (DDRs), in particular the cancellation processes.

APCA has developed a new brochure to inform customers about DDRs and how their financial institutions can help with direct debit arrangements. The brochure makes it clear that customers can stop a direct debit payment, modify details or cancel a DDR by notifying either the biller or their financial institution. Titled The Ins and Outs of Direct Debit, the brochure is available on APCA’s website. It has also been made available to financial institutions for distribution to their customers.

To assist financial institutions with the direct debit rules, APCA has produced templates for best practice Direct Debit Requests (DDRs) and for DDR Service Agreements. These are now part of the Bulk Electronic Clearing System (BECS) Procedures.