Payments Competition To Increase

The Treasury just released a consultation relating to Banking Amendment (Credit Card) Regulation 2014.  Opening up access to non-ADIs is likely to increase competition and innovation in card issuing and acquiring, resulting in downward pressure on fees and charges, and better service to merchants and end users (which include consumers, business and government). Non-ADIs would also not be subject to the ongoing costs associated with supervision by the Australian Prudential Regulation Authority. We discussed the payments revolution recently. This is likley to put the existing players, namly the major banks under increased pressure.

The changes take effect on 1 January 2015. Implementation of the new regulatory framework will require the Payments System Board of the RBA to vary the Credit Card Access Regimes to provide for reporting requirements and disclosure of eligibility and assessment criteria for Scheme membership. The Australian Payments Clearing Association will also need to vary related Bulk Electronic Clearing System rules to allow certain non-ADIs to continue to participate in the system after the removal of the SCCI framework.

The exposure draft legislation would amend the Banking Regulations 1966 (the Regulations) to open up credit card issuing and acquiring to non authorised-deposit-taking institutions (ADIs). The reforms will allow non-ADIs to become credit card issuers and card acquirers in the Visa and MasterCard credit card schemes.

The exposure draft will revoke Regulation 4 of the Regulations, which provides that credit card acquiring and issuing is ‘banking business’ and triggers supervisory requirements of the Australian Prudential Regulation Authority. The exposure draft also makes a number of consequential amendments to the Regulations as a result of the revocation of Regulation 4.

All new entrants will need to meet the same consumer credit regulations that currently apply to banks (including specialist credit card institutions) under the National Consumer Credit Protection Act 2009. The proposed credit card access reforms will not alter these general consumer credit protections. The card schemes will be responsible for determining which entities may become card issuers or acquirers under their schemes, subject to a risk management framework imposed by the Reserve Bank of Australia (RBA).

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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