AUSTRALIAN PAYMENTS CLEARING ASSOCIATION
FOURTH QUARTER 2007
ISSN 1321-7755
PaymentsMonitor
IN THIS ISSUE: Reform of payments system regulation
New chairman for APCA
Self-regulation, anyone?
ATM reforms
1
1
2
3
Farewell to Robert (Bob) Challis
Account switching
New coin handling procedures
Payments fraud low
3
3
4
4
Reform of payments system regulation
On 29 November 2007, payments industry participants
convened with government policymakers, regulators,
industry associations (including APCA), academics and
commentators to discuss reform of payments system
regulation. This was the next big step in the Reserve
Bank of Australia’s (RBA) review of its recent payments
system reforms.
No one could fault the RBA for
its efforts in promoting a lively
debate on complex and frequently
controversial issues.
This was achieved in two main ways: first, by ensuring
that there were substantial, well-researched initial
contributions to stimulate debate, and second, by allowing
a lengthy period of general discussion expertly facilitated
by Melbourne University’s Professor Ian Harper.
The initial inputs commenced with two opposing expert
perspectives on the central, long-standing controversy
of Australian payment card regulation: whether to use
regulatory power to fix interchange fees between card
issuers and card acquirers, and otherwise override the
rules of card schemes. Most readers of Payments Monitor
will know that in this area, the RBA became a global trailblazer in 2003 by mandating cost-based fee levels for
credit card interchange fees. A central issue of the
November conference was whether this should continue.
Professor Rochet of Toulouse University summarised
the network economics literature on competing payment
systems, in general seeing little theoretical rationale
for direct regulation. Dr Frankel of Lexecon, a US
consultancy, presented an impassioned defence of the
RBA’s intervention as the only way to ensure social equity
in payment systems.
Continued on page 2
New chairman for APCA
The APCA Board of Directors has appointed
Russell Rechner as the company’s new chairman
with effect from 1 January 2008.
Mr Rechner brings a wide range of skills and senior
level payments experience to his new position.
Immediately prior to his appointment, he served as a
member of the Code Compliance Monitoring Committee.
The Committee was set up in 2003 under the Australian
Code of Banking Practice to independently monitor the
extent to which banks adopting the Code meet the
standards of good banking practice set out in the Code.
In 2002, Mr Rechner retired as Director of Major
Projects, ANZ, and before that was Senior General
Manager, ANZ. He is chair of the trustees of the ANZ
Australian Staff Super Scheme. Prior to his move into
the banking industry, he held senior management
positions at Myer and Coles Myer.
Commenting on his appointment, Mr Rechner said that
he welcomes the challenges the position will bring and
looks forward to working with his fellow directors and
the staff of APCA to deliver the company’s mission of
continuously improving the Australian payments system.
Russell Rechner succeeds Robert Challis who retired
as chairman after 8 years (see page 3).
2 AUSTRALIAN PAYMENTS CLEARING ASSOCIATION
CEO’s corner
Self-regulation, anyone?
This issue’s lead story records some impressions
of the RBA’s payments system review conference
in November 2007. I want to highlight one aspect
of the broader debate on payments regulation:
the ‘self-regulation’ angle.
In its discussion paper, the RBA explicitly sought
comments on whether it was possible to allow the
development of self-regulatory alternatives to the
RBA’s current direct intervention on key elements
of payment card regulation. Conference participants
had a wide range of views. Many financial institutions
were supportive, referring to the extensive and efficient
self-regulation already in place in many areas of the
industry. However, new entrants and other players were
generally sceptical of the industry’s ability to deal with
complex issues where there were strong vested interests.
Listening to the debate, I could not help feeling that
we needed a much stronger common idea of what exactly
‘self-regulation’ meant.
Some commentators seem to assume that self-regulation
means the public regulator simply walks away, leaving
everyone to pursue their own commercial self-interest.
But this is an extreme and increasingly rare outcome.
Most self-regulatory frameworks specify coordinated roles
for both industry participants and a public regulator.
Usually, the public regulator needs to define minimum
public interest requirements, and has emergency
powers to override self-regulation if it is demonstrably
not working. This is what is meant by ‘co-regulation’ industry takes responsibility for getting regulation
right, but must accept accountability to public
regulators for what they do.
APCA has done a lot of work to explore what this
might mean in the context of Australian payments.
Late last year, we participated with an international
group of payment associations to publish Principles
of Payments Industry Self-Governance (available
on APCA’s website). Discussions with industry
participants and the RBA indicate interest in using
the Principles to cooperatively develop a concrete
model for enhanced payments industry selfgovernance. The model must be acceptable to the
diverse community of stakeholders in card payments,
and have the support of the RBA as well. The only
way to achieve this is through a co-regulatory model.
We hope to be inviting industry collaboration
to develop the model very soon. I encourage everyone
to become involved.
Continued from page 1: Reform of payments system regulation
This was followed by the results of the RBA’s own studies
on Australian payment costs and household payment
patterns, to which industry participants contributed much
data and effort. All this material is now publicly available
on the RBA’s website (www.rba.gov.au), and represents
a significant contribution to the payments industry.
The afternoon’s discussion featured short introductory
remarks by a range of industry participants, followed
by extensive, often spirited debate. Professor Harper’s
facilitation method definitely took participants into the
zone of uncomfortable debate: he addressed specific,
sometimes probing questions to participants to test
their positions. Those who might be inclined to evade
or obfuscate were given little opportunity to do so.
Significantly, all members of the Payment System Board
attended the conference, most staying for the entire day.
Thus, industry participants had a rare opportunity
to directly influence the key policy makers.
After all this, we did not see much compromise on
opposing policy positions: card schemes remain heatedly
opposed to interchange fee regulation, retailers swear
by it. This is hardly surprising: these positions have
a lot of vested interest behind them, have been fiercely
defended for years, and are repeated all over the world.
That said, as an exercise in informing the public
policymakers, and promoting substantive industry debate,
the conference was certainly worthwhile. Participants are
to be congratulated on their willingness to engage
constructively.
The key question is: what happens next? The RBA has
committed to provide an initial indication of its policy views
by April, probably with another round of industry comment
to follow. There is no doubt that some public policy
guidance is critical at this stage: is the RBA wedded
to interchange fee regulation? How important is promoting
competition, as opposed to simply keeping prices down?
3 AUSTRALIAN PAYMENTS CLEARING ASSOCIATION
However, once we have this guidance, APCA argues
that industry needs to take a major role in implementing
the results, so as to ensure a sensible, flexible outcome.
A more flexible, co-regulatory approach that gives
industry more responsibility to meet these public policy
objectives would be the best long-run outcome
(see Third Quarter 2007 Payments Monitor, p1,
‘Reinventing co-regulation’). The ‘CEO’s corner’ in this
issue explores APCA’s next steps.
ATM reforms
Farewell Robert (Bob) Challis
Bob Challis has stepped down after 8 years in
the chair at APCA.
Board and staff events in December honoured his
outstanding contribution to the company’s
development over half its life so far. Directors paid
tribute to Mr Challis’s calm, efficient helmsmanship
through sometimes turbulent debates. Staff members
acknowledged his inclusiveness and consideration
over the years.
Thanks Bob, we'll miss you.
Following a request from the industry and the Reserve
Bank in late August 2007, APCA is working to assist
the industry implement reforms to the access and
charging arrangements for the ATM system.
The reforms are designed to increase
competition and innovation in ATM
services by ensuring fair access to
ATM networks and clear price signals
to ATM users.
APCA’s work on developing a new framework for
the regulation of ATM transactions involves three key
components: developing (i) an ATM Access Code;
(ii) Business Requirements and Technical Specifications;
and (iii) an implementation Project Plan.
Using industry consultative groups, a detailed timetable
for the complex technical work has been developed
and the drafting of technical specifications and rules
for direct charging are well advanced. Also, a working draft
of an ATM Access Code has recently been completed and
is being used to conduct preliminary consultations.
Card issuers, acquirers and independent ATM deployers
have been invited to provide comment on the draft Code
by February 2008. Feedback received during this early
phase will be incorporated into an Exposure Draft which
will be broadly released in March 2008 for further review.
The industry is committed to implementing ATM reforms
by March 2009.
Account switching
As reported in the last issue of the Payments Monitor,
in mid-September APCA released a consultation
discussion paper on Aspects of Account Switching.
The paper invited public submissions on whether direct
credit and debit arrangements create a barrier to switching
accounts and sought feedback on possible options for
improving the process.
APCA received and considered a total of 11 responses
to its consultation paper. These are publicly available
at www.apca.com.au, with the exception of those that have
requested confidentiality.
All of the submissions have indicated some degree
of interest in improving the convenience for consumers
switching their financial institution accounts. A small
working group – the Account Switching Focus Group comprising members of APCA’s BECS (Bulk Electronic
Clearing System) Management Committee, is now
assessing the costs, benefits and feasibility of a number
of options. The important thing is to ensure that any
chosen option delivers a good result for consumers
and businesses within a reasonable timeframe
and an acceptable cost for everyone.
APCA expects to make available recommendations
for an industry-wide approach to account switching
in early 2008.
4 AUSTRALIAN PAYMENTS CLEARING ASSOCIATION
New coin handling Payments fraud low
procedures
APCA’s latest issue of payment fraud data released on
17 November 2007 showed a small decline in Australia's
overall rate of fraud.
APCA is introducing new procedures to improve bulk
coin handling processes in Australia.
Members1 of APCA’s Australian Cash Distribution and
Exchange System (ACDES) have been working with
Cash Carriers2 and the Royal Australian Mint on ways
to improve coin handling processes to ensure best
practice. This important occupational health and safety
initiative has resulted in a revision of the standard for coin
bag values and weights.
Under the new standard, no coin bag
should exceed 7 kgs in weight.
To achieve this, the current value of coin in bags
containing 5c, 10c, 20c and $1 will be halved. There will
be no change to the value of coin in bags containing
50c and $2.
The new standard will be introduced in Western
Australia in early 2008 and come into effect nationwide
by mid 2008.
Standard coin bag values/weights
Current
Effective mid 2008
Coin Denomination
Value per Bag
Value per Bag
Bag Weight
5c
$200
$100
5.5kg
10c
$200
$100
5.5kg
20c
$200
$100
5.5kg
50c
$200
$200
6.2kg
$1
$1,000
$500
4.5kg
$2
$2,000
$2,000
6.6kg
1 Commonwealth
Bank of Australia, National Australia Bank
Limited, Australia and New Zealand Banking Group Limited,
Bank of Western Australia, Suncorp Metway Limited and
Westpac Banking Corporation
2 Linfox
Armaguard Proprietory Limited, Brinks Australia and
Chubb Security Services Limited
PUBLISHED BY:
Australian Payments Clearing
Association Limited
ABN 12 055 136 519
Covering the 12 months to 30 June 2007, this issue
was APCA’s third six-monthly release of fraud data
for cheques, debit cards, credit cards and charge cards
and provided the first year-on-year comparison for
the data collection.
The year-on-year comparison (year to 30 June 2006
versus year to 30 June 2007) showed a drop in overall
fraud rates from 6.8 cents to 5.9 cents in every $1000.
Within this overall decline:• The rate of cheque fraud declined from 2.4 cents
to1.4 cents in every $1000;
• The rate of debit (that is, EFTPOS and ATM) card fraud
declined from 8.2 cents to 7 cents in every $1000; and
• The rate of credit and charge card fraud declined
slightly from 38.9 cents to 38.6 cents in every $1000.
There was a slight increase in the incidence of fraud
on cards (debit, credit and charge cards) to 9 fraudulent
transactions in every 100,000 transactions. Specifically:• The incidence of fraud on debit (that is, EFTPOS
and ATM) cards increased from 1.7 to 2.1 fraudulent
transactions per 100,000 transactions.
• The incidence of fraud on credit/charge cards
increased from 14.8 to 16.7 fraudulent transactions
per 100,000 transactions.
However, at 9 fraudulent transactions in every 100,000
transactions, Australia’s card fraud remains low compared
to the United Kingdom, which has an incidence of about
141 fraudulent transactions in every 100,000 transactions.
In the last 12 months, there has been significant
investment in systemic fraud prevention in the payment
cards industry through compliance with enhanced data
security standards and the progressive rollout of chip
cards. These measures are in addition to efforts within
individual financial institutions.
APCA’s entire fraud data collection is available
at www.apca.com.au.
Registered Office:
Level 6, 14 Martin Place
Sydney NSW 2000
Telephone +61 2 9221 8944
Facsimile +61 2 9221 8057
www.apca.com.au
Payments Monitor is published by
APCA each quarter. Its purpose is
to inform members and interested
parties of payments clearing
developments.