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Payment Card Access Regimes – Details-stage Regulation Impact Statement – Reserve Bank of Australia

On 7 March 2014, the Reserve Bank of Australia (RBA) decided in principle to vary the ‘Access Regimes’ for the Mastercard and Visa systems in Australia and to remove the prudential oversight framework. To issue a Mastercard or Visa card in Australia you need to be an Authorised Deposit-taking Institution (ADI). While a specialised ADI category was created in 2004-05 (specialist credit card institutions) with the intention of encouraging market participation, it is considered that the requirement to be an ADI is preventing market access and restricting competition. In particular:

  • Limiting membership to ADIs is preventing potential participants that the schemes might be willing to accept as members from participating.
  • The prudential supervision framework for specialist credit card institutions (a type of ADI) is more onerous than necessary for participants in credit card systems given the costs and the nature of the risks involved.

To address these issues the RBA proposed that the access regimes be varied to widen the range of entities eligible to participate in the Mastercard and Visa systems. The reforms would provide schemes with greater discretion to allow participation based on risk-based criteria.  Schemes would report to the RBA on how they had used this discretion and complied with access requirements. By increasing participation and competition, the changes are intended to reduce card payment costs; improve services (e.g. acquirers offering more features to merchants); and improve innovation (e.g. the introduction of niche products such as ‘virtual’ credit cards). The proposed changes will have two impacts on compliance costs: removing the requirement to be an ADI will reduce costs associated with prudential supervision, and introducing the requirement to report to the RBA and publically disclose risk-based admission criteria will increase costs.  Overall it is considered that the proposed changes will reduce industry compliance costs by $40,000 per year. The implementation of the reforms is contingent on several factors. In particular, the variations can only be effective if they occur in conjunction with the repeal of certain banking regulations, expected to become effective later this year. The OBPR notes that, consistent with the best practice regulation requirements, an options-stage RIS was prepared by the RBA and published (media release) on 6 December 2013. As required the RIS was certified by the Head of Payments Policy at the RBA. A details-stage RIS was also prepared and certified by the RBA and has been assessed as adequate by the Office of Best Practice Regulation.