Tweaking interchange down under

The Reserve Bank of Australia is loosening the reins on certain interchange limitations. In a meeting in late November 2009, the RBA changed its regulatory stance so a new, homegrown electronic funds transfer (EFT)/POS network – EFTPOS Payments Australia Limited (EPAL) – can compete with Visa Inc. and MasterCard Worldwide. RBA raised the new network's limit on interchange from between 4 and 5 cents to 12 cents per transaction.

As is the case in the United States, financial institutions in Australia often issue debit cards to holders of demand deposit accounts (checking accounts). The cards, which require PIN authorization, can be used to access funds either at ATMs or at the POS. They are branded by issuing financial institutions and are processed according to various bilateral agreements, with interchange flowing from card issuers to merchant acquirers.

The RBA, Australia's central bank, estimates 85 percent of the nation's POS debit transactions over the past year have been initiated using such ATM/POS cards. The RBA, which closely regulates card interchange in Australia, has set an acceptable range for interchange on these EFT/POS transactions of between 4 and 5 cents, payable to the acquirer.

In addition to homegrown cards, many Australian financial institutions also issue multifunction (credit and debit) Visa- and MasterCard-branded cards; when used as debit cards, these are authorized either by PIN or signature. The RBA limits the interchange on these transactions to 12 cents, which under Visa and MasterCard rules gets paid to issuers.

Fighting for POS debit share

Visa and MasterCard have been actively promoting POS debit in Australia, and that has resulted in rapid growth in these transactions. During the first nine months of 2009, for example, Visa Debit and Debit MasterCard payments by Australians grew by 37 percent, according to the RBA.

In May, a group of leading Australian financial institutions and two large supermarket chains formed the domestically owned and operated EPAL, which Australians can access using their bank-issued ATM debit cards. The network competes directly with MasterCard and Visa.

EPAL was having difficulty getting off the ground, however, in part because it was being held to the interchange limits for other non-Visa/MasterCard branded EFT/POS transactions – between 4 and 5 cents. The new ruling from the RBA makes it clear that EPAL transactions are to be held to the same parameters as Visa Debit and Debit MasterCard transactions: maximum interchange of 12 cents per transaction, payable to card issuers.

Existing bilateral agreements for EFT/POS transactions were left untouched by the RBA ruling, and acceptable interchange for these transactions remains at between 4 and 5 cents, payable to the acquirer.

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