Reserve Demands Online Alternative For Payments

Sydney Morning Herald

Tuesday April 22, 2008

Jacob Saulwick

CONSUMERS should be offered more choice in how they make payments online, the Reserve Bank says, urging finance companies to set up EFTPOS-style alternatives to using credit cards for internet payments.

The bank yesterday made clear it would not baulk at further regulation of the payments system if banks and other finance companies did not promote a competitive alternative to paying by credit card.

The Reserve is concerned that EFTPOS will whither as banks promote credit and debit scheme cards, which are profitable but less efficient and costly for customers.

In a review of recent changes in the system, the Reserve's Payments System Board said it would be prepared to step back from regulating interchange fees charged by banks for the use of credit cards - but only if the industry stimulated its own competition.

It said it did not want to be prescriptive, but suggested a number of ways in which banks and other finance companies could ensure EFTPOS, a relatively cheap method of payment, remained an alternative to credit cards.

Among the suggestions was changing access arrangements for EFTPOS and developing an alternative payment instrument for online purchases, either through EFTPOS or another system.

The general manager of policy and campaigns at the consumer advocate Choice, Gordon Renouf, welcomed the emphasis on developing an alternative to credit and debit cards, saying that from a consumer's point of view EFTPOS was a cheap and safe payment system.

"Australia has this relatively efficient EFTPOS scheme, and the Reserve is correct to keep an eye on ensuring it stays around."

The Reserve was telling the banks to "make sure EFTPOS system sticks around and, to do that, you will need to make sure it retains an online functionality", Mr Renouf said.

The board will take stock of the industry's progress at its meeting in August. It said yesterday that it would remove interchange regulations if it was satisfied with the progress made, but would step up regulation otherwise. This would include slashing credit card interchange fees from about 0.50 per cent of transaction value to about 0.30 per cent.

It would also promote EFTPOS payments by establishing an interchange fee of about 5c paid to the cardholder's financial institution. The current system pays a 4c-5c fee to the merchant's financial institution.

The chief executive of the Australian Payments Clearing Association, Chris Hamilton, said "the paper provides important guidance on the RBA's required public policy outcomes and will enable the industry to consider an appropriate response".

© 2008 Sydney Morning Herald

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