State of the Industry Report September 2024

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CMSPI – IAC State of the Industry Report

In 2009, EFTPOS’s multilateral interchange fee cap was set at 12 cents, the same as for global scheme debit. In 2016, the RBA reduced the cap for all networks from 12 cents to 8 cents per transaction. Lastly, in 2021, the RBA introduced a ‘sub-benchmark’ for single network debit cards (SNDCs), such that the weighted-average interchange fee on SNDCs would from a given scheme not exceed 8 cents. WHAT IMPACT DID THE CAPS HAVE? Interchange Savings Immediately following the enforcement of the 2003 interchange caps and surcharging flexibility, there was a sharp decline in the Mastercard and Visa average cost of acceptance for Australian merchants (see Graph 5.2). Furthermore, costs continued to decline over time, possibly due to factors such as many merchant acquirers gradually passing on interchange regulation savings to merchants, and surcharge flexibility helping merchants drive down card fees. 307

A 2006 RBA review revealed a positive impact from the 2003 interchange reforms, with average merchant service fee falling from 1.40% to 0.89%, resulting in around $730 million in total acceptance fees for merchants. The RBA also monitors cardholder reward programs and found that these programs continue to exist despite credit card interchange fee caps. 309 The Demise of Bankcard In November 2006, the standards were amended to apply a common benchmark across Visa and Mastercard following Bankcard’s decision to cease operations in 2006. Critics noted that the original scheme-specific benchmarks may have given schemes “with the highest benchmark a competitive advantage in attracting issuers.” 310 Network Fee Increases Fast forward to 2021, and while aspects of the reforms have worked to keep interchange fees in check, much like observed behavior in Europe, there is evidence that network scheme fees may be increasing. The RBA has estimated Australian merchants paid around $1.2 billion in net scheme fees in 2021-2022. 311 This figure excludes issuer and acquirer (merchant) rebates, with issuers receiving “significantly higher rebates.” 312 Cost Impact of Online and Digital Growth In more recent years, in-store volume shifts to digital and online channels have significantly impacted costs for Australian merchants. From 2020 to 2023, the cost of online transactions has on average increased across networks.

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1.50%

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 American Express Credit Diners Club Credit eftpos Debit Mastercard and Visa All Mastercard Credit Mastercard Debit Visa Credit Visa Debit

Graph 5.2 – Average Merchant Fees by Card Type in Australia 308

309 https://www.rba.gov.au/payments-and-infrastructure/review-of-card-payments-regulation/banks-card-system.html 310 https://www.rba.gov.au/publications/annual-reports/psb/2006/pdf/2006-psb-ann-report.pdf 311 Payments System Regulation and Policy Issues | Payments System Board Annual Report – September 2023 | RBA 312 Payments System Regulation and Policy Issues | Payments System Board Annual Report – September 2023 | RBA

307 https://www.rba.gov.au/payments-and-infrastructure/review-of-card-payments-regulation/banks-card-sys- tem.html 308 https://www.rba.gov.au/payments-and-infrastructure/review-of-card-payments-regulation/banks-card-sys- tem.html