Pricing and disclosure arrangements in Australia’s payments system will undergo a transformation if the Turnbull Government implements the key recommendations of the Productivity Commission’s reform blueprint.
Perhaps the most significant reforms advanced by the commission focus on the opaque pricing systems underpinning the debit payments market.
The inquiry is calling for a root and branch overhaul that will impose formal requirements on three-party card schemes such as American Express to meet new disclosure rules relating to interchange and merchant fees.
The commission’s big proposal, which is almost guaranteed to drive the card schemes to spend lots of money on lobbyists in Canberra, is for all card interchange fees to be abolished by the end of next year.
The inquiry has formed a view that the current interchange fee and surcharging arrangements are "too complex".
“The Payments System Board of the RBA should ban, by end-2019, all card interchange fees as a way to reduce distortions in payment choices and the flow-on costs of these distortions to merchants,” the PC argues in its report.
“Given the potential for three-party card schemes to avoid such regulation and further distort the mix of payment instruments, the ACCC should investigate whether further intervention — such as the direct regulation of merchant service fees — is necessary.”
The commission has recommended that all other card related fees “should be made transparent and published”.
The inquiry wants the ACCC and ASIC to investigate what additional disclosure methods could be used to improve consumer understanding and comparison of fees for foreign transactions levied by banks and payments providers.
Moreover, the government will be asked to set a deadline for banks to make least-cost routing available to Australian merchants.
Under current arrangements, the banks automatically divert all contactless debit payments to high-cost processing platforms owned by Mastercard and Visa.
The PC wants merchants to be given the power by 1 January next year to route dual-network debit card transactions to a payments platform of their choice.
If implemented this could deliver more transaction volume to Eftpos Australia, which processes contactless payments at up to half the cost of the global schemes.
At least three of the major banks have begun to update their systems to facilitate least-cost routing, but there is considerable doubt surrounding whether CBA is taking action.
The PC also reiterated its concerns with the governance arrangements for the New Payments Platform.
It wants an access regime imposed on the NPP by the Reserve Bank’s Payments System Board to support deeper access of non-ADIs to the platform’s services.
It also encourages all banks and deposit taking institutions that are NPP members to share de-identified transaction-level data with overlay service providers.