State of the Industry Report September 2024

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CMSPI – IAC State of the Industry Report

RBA PAYMENT TOKEN FRAMEWORK The RBA has announced some key expectations for the payment token framework in Australia, including 1) the launch of domestic network EFTPOS ecommerce tokenization services by March of 2024; 2) token request and storage for both domestic and international networks; and 3) PAN storage deprecation by June 2025 only for merchants and payment service providers that fail to meet minimum security requirements for storing sensitive account data. 327 This last item is a departure from initial plans to fully remove the PAN from scope and is a noteworthy development given the importance of PAN to customer response management, and as a back-up tool to select and monitor routing choice. 328 Additional key features of the RBA’s vision include: 1) token portability solutions for both network and payment service provider tokens to enable more flexibility for stakeholders to switch providers; and 2) active engagement from issuers and other token-holding entities to synchronize token status and attribute changes across all relevant stakeholders much akin to account updater management performed by networks in some geographies – usually for a fee. Australian payment network token developments over the next year and a half could be market-leading and will be monitored closely, especially by stakeholders in the U.S. who desire more portability and synchronization of payment tokens to increase transaction decision flexibility and drive potential efficiencies across their business. 329 In May 2024, the RBA published updated expectations: Expectations for Tokenisation of Payment Cards and Storage of PANs - May 2024 | RBA. Section 5.4.3 – Discounting and Surcharging in Australia In 2003, the Reserve Bank of Australia (RBA) began lifting its own legal restrictions against surcharging and ‘no-surcharge’ rules that were put in place by networks such as Visa and Mastercard. The RBA found that its 2003 payments reforms including surcharging rights guarantees and interchange caps had the desired effect on the payment landscape – consumers became more conscious of price signaling by avoiding surcharges when possible and the cost of acceptance levied on merchants steadily decreased in the proceeding years. 330 These restrictions against no-surcharging rules have been expanded to include other payment methods such as EFTPOS, American Express, Diners Club, UnionPay, and PayPal. 331 Merchants increasingly utilized the opportunity to surcharge in the years following the 2003 reforms (see Figure 5.3).

Graph 5.6 – Card Not Present LCR Availability and Enablement for Merchants in June and December 2023 326

TOKENIZATION Routing choice is available amongst international and domestic debit networks in Australia and is subject to many of the same commercial and customer experience considerations faced by U.S. merchants. Namely, the RBA has sought to protect merchants’ rights to access the generally lower-cost EFTPOS network including in mobile and ecommerce environments. Many of the same strategic concerns that have materialized around tokenization technology in the United States (See Sections 2.4 and 5.2), are pervasive in Australia. As such, the RBA has taken an active role in the implementation of card industry tokenization deployment in Australia. The RBA has developed other key principles that are indicative of global learnings from token adoption in countries like the U.S. If Australia is successful in encouraging broad industry adoption of its desired framework, it could become an improved global model for payment tokenization.

327 Expectations for Tokenisation of Payment Cards and Storage of PANs | RBA 328 Expectations for Tokenisation of Payment Cards and Storage of PANs | RBA 329 Expectations for Tokenisation of Payment Cards and Storage of PANs | RBA 330 https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/pdf/review-of-retail-pay- ments-regulation-issues-paper-nov-2019.pdf 331 https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/pdf/review-of-retail-pay- ments-regulation-issues-paper-nov-2019.pdf

326 https://www.rba.gov.au/payments-and-infrastructure/debit-cards/least-cost-routing/update-on-implementa- tion.html