To narrow a disparity in debit interchange pricing, Australia's central bank will cap fees for signature and PIN debit transactions later this year.
The caps will shrink revenue for banks and for merchants. In the United States, merchants pay interchange fees to the card-issuing bank for both PIN and signature debit. In Australia, the system works the same for signature debit - but the bank pays the fees for PIN debit to the merchant.
The change will also probably increase Australians' use of PIN debit.
Signature debit fees in Australia currently average about 31 cents, and PIN debit fees about 15 cents. After the cap takes effect, the average fee will fall to about 12 cents for signature transactions and about 3 to 4 cents for PIN debit, the Reserve Bank of Australia said.
The changes, announced a week ago, would reduce the gap between the two debit products from about 46 cents in the banks' favor to just 15 cents in their favor.
The Reserve Bank also imposed a reform on Visa International that parallels a change in the U.S. payment system. The San Francisco card association will be barred from making merchants that accept its credit cards also accept Visa debit cards. The "honor all cards" rule prevented merchants from imposing a surcharge on Visa debit card transactions.
Visa debit cards will also have to carry visual and electronic signs that they are debit cards, to help merchants decline them if they wish to do so.
The Australian central bank also took action on interchange fees in 2003, reducing them for credit card purchases and making card networks let merchants surcharge. It said then that interchange fees had "distorted" payment patterns.
Last month the Reserve Bank declared that the current structure of debit interchange fees creates a strong incentive for banks to promote signature debit over PIN debit, because banks make far more money with signature debit "despite both forms of payment accessing a deposit account."
Narrowing the difference between these fees "will promote competition between the schemes based on the benefits that they offer to cardholders and merchants, rather than on fees that are not subject to normal competitive pressures," it said.
The PIN debit reform will kick in Nov. 1. The deadline for the signature debit reform is more complicated.
The Reserve Bank said the cap would not apply to PIN debit transactions in which the customers receive cash back. In part, this is because its current interchange policies do not apply to automated teller machine transactions.
As a result, issuers and merchants will have to negotiate separate fees for cash-back transactions at the point of sale, and the central bank "is not convinced that the public interest would best be served by regulating those fees."
When it was being developed, MasterCard Inter-national of Purchase, N.Y., did not offer a signature debit card in Australia.
It does now, and it has told the Reserve Bank that it would voluntarily comply with any standards imposed on Visa debit.
Nevertheless, Visa complained that it was unfair to impose requirements on its debit cards but not MasterCard's.
The Reserve Bank will let both comply voluntarily but will make them do so if they have not voluntarily lowered their interchange fees by July 1.
Ian Macfarlane, the Reserve Bank's governor, said in February that though the Australian public prefers PIN debit cards, the banking industry prefers to issue credit cards because they are "phenomenally profitable."
"There is a clear public demand for [PIN debit] cards, and as a result the banking sector has to provide them. But they provide them without enthusiasm," Mr. Macfarlane told the Standing Committee of Economics, Finance and Public Administration of the Australian House of Representatives.
Michael Ebstein, who runs MWE Consulting in Melbourne, wrote in an e-mail Wednesday: "I'm not sure that the changes will do too much.
"Merchants will probably end up paying more, as acquirers seek to replace reduced interchange income," he wrote. "But issuers should reduce debit transaction fees, so I can't see a major change.
"One longer-term issue may be: Just where will the incentive come for the acquirers to reinvest in the infrastructure?" Mr. Ebstein wrote.
