A Guide to the Card Payments System Reforms

Studies by the Reserve Bank undertaken from 2000 to 2002 concluded that the structure of pricing in the Australian card payments system was encouraging inefficient use of credit cards relative to EFTPOS. From 2003, therefore, the Bank progressively introduced reforms to address this issue: ‘interchange fees’ were reduced; merchants were permitted to reflect the cost of different payment instruments in their prices to consumers; and merchants were provided with more freedom to choose the payment instruments they accept. The effect of these changes was to increase the price to cardholders of using a credit card relative to EFTPOS, thereby reducing the incentive to use the more costly payment instrument (credit card) over the less costly one (EFTPOS) and reducing the overall cost of the payments system. The reforms also strengthened the ability of merchants to put downward pressure on the fees they pay when they accept cards.