RBA to tweak card scheme standards

Bernard Kellerman Finance regulation

The Reserve Bank of Australia has asked for “stakeholder views” on eight proposed changes to standards governing card scheme interchange fees and to net payments to issuers in those schemes.

The standards being revised by the RBA were established in 2016, following on from the review of its card payments regulations begun in 2015. The new requirements introduced related to the payment of “net compensation” to issuers and were designed to prevent the caps placed on interchange fees being circumvented.

The RBA said it conducted a comprehensive review of the regulatory framework in 2015-16 and is “likely to undertake another such review within the next couple of years”.

This is a “limited-scope consultation” that does not seek to review or change the substantive detail of the card payments regulations, the RBA said in its introductory comments to the paper.

Accordingly, the Bank is seeking informal views on how the requirement could be modified to improve clarity, minimise compliance burden, or otherwise support the operation of the standards, without changing their purpose or substantive effect.

The first of the eight proposed changes aims to clarify the way generally accepted Australian accounting principles apply to up-front incentives on a cash or accruals basis.

The RBA said the cash approach to the measurement of benefits was originally chosen “as it was viewed as being both straightforward and – with one exception – consistent with the nature of benefits typically provided by schemes to issuers”.

“In informal consultation,” the RBA said, “many stakeholders noted that calculating net compensation using the current ‘quasi-cash’ approach was a highly manual process. They suggested that an accruals approach, aligned with recognised accounting standards, would enable them to source component data for the net compensation calculation from their financial accounts and thereby reduce their compliance costs.”

Other technical proposals relate to tightening up the definitions of:
•    “issuer payments”, to specify that only payments for core services are included, rather than other forms of consideration such as rebates, refunds, allowances, discounts or deductions, as is the case in the current version of the standards; and
•    “issuer receipts”, which include any discount or deduction from the regular price for supply of property or services, along with any amounts that exceed fair value of the property or services provided.

The RBA also said questions had been asked about which entity should be treated as the issuer for the purposes of compliance with the net compensation requirements.

Accordingly, the Bank proposes to modify the operation of the standards, such that the obligation to comply with the net compensation requirement falls on the entity that has the status within a scheme to issue cards itself or sponsor another entity into the scheme.

The Bank warned that it “would look to reinstate net compensation obligations on downstream issuers if arrangements emerged that sought to take advantage of this change in compliance requirements”.

A further proposal is to clarify that the types of entity that an issuer can receive an issuer receipt from include associated entities of scheme administrators, drawing on the definition of “associated entity” in the Corporations Act 2001.

The RBA said it anticipates that, if the Payments System Board determines that changes are in the public interest, variations to the standards would be implemented before the end of the current financial year, with the varied standards to commence from 1 July 2019.

The Bank invites interested parties to provide their views in writing on the consultation paper and draft variations to the standards by 28 March.