1.2 Regulations in credit card schemes
Payment instruments that involve the transfer of funds
across the books of financial institutions require co-operation between
these institutions to ensure that payments can be effected. Co-operation
normally takes the form of various rules and regulations agreed by
participating institutions, either bilaterally or on an industry-wide basis,
covering such matters as procedures for funds transfers, technical and
operational procedures and criteria for participation.
The Bankcard, MasterCard and Visa credit card schemes
have extensive rules and regulations that govern their operations.
The main characteristic of
‘four party’ card schemes,
which distinguishes them from the three
party schemes, is that the rules and regulations are determined
collectively by the financial institutions (Issuers
and Acquirers) that are members of
each scheme, but that are otherwise competitors in providing credit card
services to Cardholders and
Merchants. In particular, members of each
card scheme collectively:
-
set
the wholesale fees (known as
Interchange Fees) that are paid to the
Issuer by the
Acquirer
whenever a
Merchant
accepts a credit card for payment;
-
determine the criteria for membership of the schemes and the membership
fee (ie the price for access); and
-
in
the case of the MasterCard and Visa schemes, impose restrictions that
prevent Merchants passing on the cost
of accepting Credit Cards to
Cardholders – the so-called ‘no
surcharge’ rule. (These restrictions are also imposed on
Merchants by the
three party schemes.)
Although some minimum set of
private-sector regulations is likely to be necessary for the safe and
orderly operation of a payment system,
co-operative behaviour between
competitors which involves the collective setting of prices is rarely
permitted in market economies. Prima
facie,
such behaviour is anti-competitive and, where it is allowed, it typically
requires some form of dispensation by competition authorities on the basis
that there are offsetting benefits to the public. In Australia, the Trade
Practices Act 1974 prohibits
co-operative behaviour between competitors if it has the effect of
substantially lessening competition, fixing or maintaining prices, or
restricting or limiting dealings with particular persons such as new
entrants to a market. However, such conduct may be authorised by the
Australian Competition and Consumer Commission (ACCC) if it judges it to
result in a net public benefit.
Several payment systems in Australia have
sought authorisation to ensure that
their regulations can satisfy a public interest test. For instance,
the regulations and procedures for four clearing streams operated by the
Australian Payments Clearing Association (APCA) – which govern the transfer
of funds involved in ATM and debit card (EFTPOS) transactions, cheques, bulk
electronic and high-value transactions – have been authorised under the
Trade Practices Act 1974, and participants are
thus free from the risk of prosecution for engaging in the behaviour
authorised.
However, none of the credit card schemes in Australia are authorised under
the Trade
Practices Act 1974. The Bankcard scheme was
granted authorisation in 1980 by the Trade Practices Commission, the
predecessor of the ACCC, on condition that scheme members not impose
restrictions on the freedom of merchants to determine the prices they were
prepared to charge customers paying either with cash or Bankcard. The
authorisation was revoked in 1990, one reason being the Commission's
concerns about Bankcard's restrictive membership criteria.
Neither the MasterCard nor Visa
credit card schemes has applied for authorisation.