Australia's independent competition research agency has delivered a damning interim assessment of competition in the domestic retail banking sector, arguing that price tension is "rarely evident" in the home loan and credit card markets.The Productivity Commission's 640-page draft report on the financial services industry recommends sweeping reforms to eradicate conflicts of interest and regulatory approaches that put stability of the banking system ahead of consumer interests.It also recommends wide-ranging changes to "black box" pricing systems, including interchange fees and broker commissions, where customers have little visibility into transaction costs.While the draft report covers all parts of the financial services industry - financial advice, insurance and banking - the bulk of the recommendations are focused on addressing market failures in retail banking.The inquiry is also concerned about the competitive landscape of new and emerging market spaces in the financial services industry, most notably structural flaws it has identified in the soon-to-be-launched New Payments Platform.The report argues that stand-alone overlay service providers operating through the NPP are likely to be at a competitive disadvantage to overlay providers who are also transacting participants (banks), because the former will not have sufficient access to data.Unequal access to data could delay or deter new overlay service providers from competing against services owned by the banks, such as Osko."All overlay service providers will not be treated equally," the report states."Only those which are also transacting participant entities will have access to de-identified individual transaction-level data of the payments made using their service."Those entities with the full data picture that compete with those that do not may have a competitive advantage in providing their own overlay services."The report is scathing of existing interchange fees embedded in the credit card market and wants the Reserve Bank to give merchants more control over the payments arrangements they enter with banks.While the country's four major banks are continuing to stall the RBA's push for least-cost routing on tap and go transactions, the Productivity Commission says the central bank's Payments System Board should go further by slapping a ban on interchange fees."The Payments System Board should introduce a ban on card payment interchange fees by mid-2019," the report states."Any remaining fees should be directly related to the costs of operating the system. "Such fees should be made transparent and published."The Australian Prudential Regulation Authority's cultivation of non-competitive market structures in retail banking is a recurring theme of the draft report.The draft report observed that APRA's crackdown on lending practices last year - which triggered a sharp repricing of mortgages - delivered "a windfall gain to the banking sector".To rebalance its activities to support competition, the review recommends that APRA review its risk weighting on mortgages so that they better reflect risk and that lawmakers make the regulator more accountable for its actions.The draft report is sceptical about the alleged contributions made by mortgage brokers to stoke competition among lenders."The growth in mortgage brokers and other advisers does not appear to have increased price competition," the Commission says. "Non-transparent fees and trailing