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Payments Regulation in Asia
Report Introduction In collaboration with Amazon, CMSPI is pleased to present this paper on payments trends and regulations across four of the largest retail payments markets in the Asia Pacific region. The countries in scope are Japan, India, Singapore, and Australia. Across these countries, card payments represent between 15% and 40% of total retail payments, and this share has been growing in some countries by 3x in just five years. This report will examine the key trends around cost, consumer behavior, and regulation in each of the jurisdictions covered.
In almost all four countries, card fees, particularly interchange fees and scheme fees, have either risen, or been cited as an issue for merchants due to the high costs of acceptance.
In addition, when merchants sign card acceptance agreements with the card networks, they are bound by the rules of the card networks. These rules can include restrictions on merchant treatment of the card brand (i.e., prohibitions on card surcharging) as well as limitations on merchant choice of acceptance. For example, ‘honor-all-cards’ rules by the global networks may require debit-accepting merchants to accept credit cards, which can cost nearly twice as much as debit cards. Given the market share that the global card networks maintain, merchants are not always able to turn off acceptance of card networks without sacrificing potential sales and customer convenience. In addition, card-accepting merchants are exposed to the asymmetric treatment of interchange within the two-sided card market. As networks compete for issuance, the price of interchange is driven up, a phenomenon sometimes referred to as reverse or ‘perverse’ competition. 1 Citing rising fees, regulatory interventions have been taken by certain markets with the intention to alleviate rising fees and establish a more efficient payments market. This report examines merchant-focused regulatory interventions in two ways: competition and controls within the card market and competition with the card market through investment in local competitor payment methods. Within the card market, regulators have enacted a variety of interventions, such as setting the maximum price of interchange, thus curtailing the effects of reverse competition; mandating competition on card payments through the use of co-badging; guaranteeing merchant rights to surcharging; and mandating pricing disclosure of interchange fees. The report examines the approach by each country to intervene on rising card costs and analyzes publicly available data associated with the costs of card acceptance. Regulators have also invested in pay-by-bank infrastructure which offers an alternative route for digital payments. In some countries, usage of pay-by-bank solutions has grown dramatically, surpassing the share of cards for retail payments in-store and online. Typically, these solutions offer efficiencies above card rail offerings, such as faster settlement and greater interoperability, and are usually lower cost for processing than card payments. Digital wallets are also able to build on and integrate with pay-by-bank rails, offering consumers and merchants an alternative to card payments as well.
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