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This story appears in the November 2008 issue of Cards&Payments.
Australia's debit card systems have undergone significant changes with the country's interchange-rate reforms, and more transformation is on the way.
Visa Inc. has offered a debit card system since the 1980s, and MasterCard International–now called MasterCard Worldwide–entered the fray with a debit card scheme in 2005. But about 80% of debit transactions are handled through Australia's domestic debit card system that eight banks operate.
Before 2003, Australia's domestic debit card system involved issuers paying interchange to merchants' acquirer banks. Some acquirers chose to share some of the interchange revenue with large merchants, at a rate of about 20 cents per transaction. The Reserve Bank of Australia in 2003 determined that the arrangement created an imbalance favoring the open-loop debit systems Visa and MasterCard operate.
In November 2006, the central bank capped average open-loop debit interchange at 12 cents per transaction. It also set the domestic debit system interchange rate at between 4 cents and 5 cents per transaction, paid by card issuers to acquirers.
In its report last month, the central bank said one condition for eliminating interchange-rate regulation would be the voluntary development by the payments industry of a more-competitive domestic debit card system. The bank said the new domestic debit system should be managed and marketed by an independent board, separately from the banks that currently operate Australia's only domestic debit system.
The current domestic debit card system consists of a series of bilateral agreements that grew over time among major banks and is not considered to be a formal debit system, a central bank spokesperson says.
Many payments-industry participants have responded positively to the bank's suggestion of creating a more-competitive domestic debit system. The Australian Payments Clearing Association, a public company owned by Australia's banks that focuses on self-regulation and consistent payment-industry standards, says it is working toward improving system governance and the development of an independently managed domestic-debit system.
"If the card issuers can get a competitive domestic debit system off the ground, ... it will go a long way toward improving the overall interchange-rate environment," says a spokesperson for the central bank.
