Review of Card Payments Regulation: Surcharges Conclusions
The Review was initiated with the publication of an Issues Paper in March 2015. After extensive consultation with stakeholders, the Bank published some draft standards in December 2015. The Bank received submissions on the draft standards from more than 40 organisations and the staff have had over 50 meetings with stakeholders since their release. There was significant support for the proposed reforms from end users, including major consumer and merchant organisations.
The new surcharging standard will preserve the right of merchants to surcharge for more expensive payment methods. However, consistent with the Government's recent amendments to the Competition and Consumer Act 2010, the new standard will ensure that consumers using payment cards from designated systems (eftpos, the debit and credit systems of MasterCard and Visa, and the American Express companion card system) cannot be surcharged in excess of a merchant's cost of acceptance for that card system. Eligible costs are clearly defined in the standard and new transparency requirements will promote compliance with and enforcement under the new framework. With the cost of acceptance defined in percentage terms, merchants will not be able to impose high fixed-amount surcharges on low-value transactions, as has been typical for airlines. The ACCC will have enforcement powers under the new framework, which will take effect for large merchants on 1 September 2016 and for other merchants on 1 September 2017.
The new interchange standards will result in a reduction in payment costs to merchants, which will place downward pressure on the costs of goods and services for all consumers, regardless of the payment method they use. The weighted-average benchmark for credit cards has been maintained at 0.50 per cent, while the benchmark for debit cards has been reduced from 12 cents to 8 cents. The weighted-average benchmarks will be supplemented by ceilings on individual interchange rates which will reduce payment costs for smaller merchants. Commercial cards will continue to be included in the benchmarks, but the Board has decided for the present against making transactions on foreign-issued cards subject to the same regulation as domestic cards. Schemes will be required to comply with the benchmarks on a quarterly frequency, based on weighted-average interchange fees over the most recent four-quarter period. These tighter compliance requirements will ensure that the regulatory benchmarks are an effective cap on average interchange rates. The new interchange standards will largely take effect from 1 July 2017.
To address issues of competitive neutrality, interchange-like payments to issuers in the American Express companion card system will now become subject to equivalent regulation to that applying to the MasterCard and Visa credit card systems. More broadly, to prevent circumvention of the debit and credit interchange standards, there will be limits on any scheme payments to issuers that are not captured within the interchange benchmarks.
These changes to the regulatory framework are consistent with the direction of reforms suggested in the Final Report of the Financial System Inquiry and endorsed in the Government's October 2015 response to the Report.
A summary of the new regulatory framework is provided in some Q&A on the Bank's website. The Board thanks stakeholders for their submissions and their engagement through the consultation process.