Australia - The Evolution and Regulation of the Payments System

Overall, the reform process to date has promoted more soundly based competition in the Australian payments system. The subsidies paid to many credit card users have been reduced, as reward points have been cut and some surcharging has occurred. The decline in interchange fees has also reduced merchants' costs, and we have no doubt that this is flowing through into lower prices of goods and services than would otherwise have been the case. Lower interchange fees have also seen a re-orientation of competition in the credit card market. With less interchange revenue available, issuers are now competing for cardholders by lowering interest rates, rather than through reward points.

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The Bank's interventions to date have been about creating an environment in which competition in the Australian payments system works in a way that promotes the evolution of the system in an efficient manner. The reforms have meant that price signals are less distorted than they were previously, access has been liberalised, and restrictions on merchants have been removed. While more may still need to be done, these reforms mean that we can be more confident than previously that whatever outcomes the market delivers, they will be in the collective interests of all users of the payments system.