Chapter 14
Competition in the payments system
14.1
There are many aspects of the payments system about which concerns have
been raised concerning competition. The Committee heard that the payments
system may be a significant barrier to entry, due to the dominant role of the
major banks:
...some non-ADIs have approached us and said they have found
significant obstacles—for example, in accessing the payments clearance system...[1]
APCA [Australian Payments Clearing Association] is governed
by the big four banks and the big two credit card companies, that they set the
rules of the game and that in a sense there is really a disincentive for them
to set rules that would make it easy for new entrants to come into the market.[2]
If you think about the financial sector, it is a bit like a
triangle, with the Reserve Bank at the top, then the banks and then everybody
else—and everybody else in the financial sector is dependent upon the banks for
access to ultimate liquidity, which does put the banks in a very powerful position
in that area.[3]
Background
14.2
The main supervisor of the payments system, and catalyst for improved
competition within it, is the Payments System Board of the Reserve Board. This
is an additional board to the more familiar board with responsibility for monetary
policy decisions. It is chaired by the Governor of the Reserve Bank and
includes the Chair of the Australian Prudential Regulation Authority (APRA) and
some independent experts.
14.3
Another key role in the payments system is played by the Australian Payments
Clearing Association (APCA), a private self-regulatory body, owned by
organisations active in one or more of the five payments clearing systems that
it administers. APCA told the Committee that it:
...believes that promoting competition is the best means to
ensure the payment services deliver what Australian citizens and businesses
need over the long term.[4]
14.4
From being dominated by cash and cheques there are now a number of
different electronic systems that enable payments to be made (Chart 14.1).
Chart 14.1: Non-cash
payments per capita
Source: Australian Payments Clearing Association, Submission 49,
p 3.
ATM fees and access
14.5
ATM fees have become more important as banks close physical branches and
ATM networks expand (lower and upper lines respectively in Chart 14.2).
Chart 14.2: Bank
branches and total ATMs
Source: Secretariat, based on data from Reserve Bank
of Australia.
14.6
A significant, albeit declining, proportion of ATM transactions may
incur a fee. A relatively high estimate made last year was:
...almost half of all ATM cash withdrawals are made outside of
a bank or credit union’s own ATM network.[5]
14.7
A survey in late 2010 showed that less than a quarter of ATM withdrawals
incurred a direct fee.[6]
Younger people and those outside major cities are more likely to pay, although
those in remote areas appear to make more use of EFTPOS cash-outs to avoid ATM
fees.[7]
14.8
Some submissions are critical of ATM fees:
A $2.00 charge for a $50.00 withdrawal contains an explicit
finance charge of 4% daily (the Annual Percentage Rate is harsh and
unconscionable). A fair warning disclosing the implied finance rate would be
more responsible rather than the small dollar value. The majority of clients
incurring such fees do not have the financial skills to calculate the finance rate.[8]
14.9
ATM fees have a disproportionate effect on poorer people as it is harder
for them to use ATMs from their own bank, they are more likely to withdraw
smaller sums and a fixed charge is a larger proportion of their income. The
Redfern Legal Centre refers to:
...the elderly and people with disabilities, who in our
experience are more likely to experience difficulty in travelling in order to
access fee-free ATMs. They are also often less able to afford the fees.
Consumers living in areas that are under-serviced by banks (often due to branch
closures in rural, regional and remote areas) have little choice between banks
or ability to travel in order to avoid ATM fees. Accordingly, the imposition of
ATM fees has a greater impact on people living in non-urban areas. Given that
there are generally higher levels of unemployment and lower average incomes in
such areas, ATM fees are hardest to avoid by the people who are least able to
afford them.[9]
14.10
Similarly, the Brotherhood of St Laurence commented:
While some banks offer free ATM transactions, if you are
constrained or disabled then the cheapest ATM may not be convenient.[10]
14.11
ATM fees were reformed by the Reserve Bank in March 2009. The most
visible element was abolishing fees charged by banks to their customers for use
of other banks' ATMs and their replacement by direct charges. Under the
previous system the owner of an ATM charged the bank of the customer using the
ATM an 'interchange fee'. The bank then passed on this fee, or sometimes more
than passed it on, to the customer as a 'foreign fee', which the customer would
only become aware of when they received their next bank statement. Now the ATM
owner directly charges the customer at the time of the transaction but has to
display the charge before the transaction is completed. The customer must be
given the opportunity to cancel the transaction without cost if they do not
wish to proceed.
14.12
These reforms saw a shift in transactions towards use of ATMs owned by
cardholders' own banks away from those owned by other banks (Chart 14.3), an
increase in average withdrawal size when using other banks' ATMs, and increased
use of (typically free) EFTPOS cash-outs, all of which reduce the amount of
transaction fees.[11]
The Reserve Bank estimates that this has saved bank customers around
$120 million a year in cash withdrawal fees.[12]
Chart 14.3:
Composition of ATM withdrawals
Source: Flood, Hancock and Smith (2011, p 44); update
of Reserve Bank of Australia, Submission 41, p 23.
14.13
The reforms have been hailed in some quarters:
...the reforms introduced in 2009 by the Reserve Bank of
Australia, which aimed to make fees transparent, improve consumer choice and
increase competition and the supply of ATMs in Australia, have been successful.[13]
We were very supportive of moving to the direct charging
regime....[14]
14.14
One smaller bank witness was less enthusiastic:
...if we looked at what the consumer is paying in a quantum,
whether it is in a transaction fee or a direct charge, my thought would be that
it has not changed much over the last 10 years. Whilst there is more
visibility, I am not sure whether the consumers are better off...... in America,
when they brought in the [direct charging] regime that there are short-term
changes of behaviour but it does not persist.[15]
14.15
Fortunately, the Australian experience has not followed this pattern. As
shown in Chart 14.3, Australian bank customers have increasingly avoided
incurring foreign ATM fees. Banks can choose to increase the number of ATMs
their customers can use without charge by reciprocal agreements or by agreeing
to make payments to owners of other ATM networks. Many banks have done so.[16]
14.16
Most banks charged 'foreign fees' of $2, and so far this is also the
most common direct charge for use of an ATM (Chart 14.4).
14.17
An exception is National Australia Bank:
Since the introduction of direct charge our pricing has been
$1.50 per withdrawal and $0.50 per balance enquiry. This pricing is consistent
across our entire network and no differentiation is applied for either location
or time of day, selected locations apply no direct charge on any withdrawal or
balance enquiries.[17]
14.18
The Reserve Bank told the Committee that:
A small number of ATMs owned by independent deployers apply
even lower charges, including some for which no direct charge is levied at all,
with the cost of the transaction being met by the site owner.[18]
Chart
14.4: Direct charges for withdrawals
Source: Reserve Bank of Australia, Submission 41,
p 23.
14.19
It is disappointing that so far the greater price transparency has not
led to competitive pressures driving down the price of ATM transactions. Two
Reserve Bank officials surmise that:
It is possible that this reflects the fact that cardholders
typically need to proceed some way through the transaction process at the ATM
before the direct charge is displayed. This may make it difficult to compare
prices, particularly where cardholders are unfamiliar with the ATMs in a
particular location. While cardholders might avoid an ATM if they see that it
applies a direct charge higher than they think is reasonable, there is little
incentive for ATM owners to lower fees if it is not obvious to potential
customers that they have done so. As a consequence, relatively little price
competition among ATM owners appears to have developed to date. An obvious
response is for ATM owners with a low direct charge to advertise the charge
prominently so as to attract additional throughput and higher fee revenue.
There is nothing to prevent owners from doing this, although the strategy
requires the general public to understand pricing sufficiently to react
accordingly. To date, advertising of prices has occurred only in isolated
cases...[19]
14.20
The Reserve Bank remains optimistic that greater price competition is 'the
next stage that may well be in prospect'.[20]
14.21
The Commonwealth Bank stated:
Currently, almost all of our ATMs do not cover their costs
through the ATM direct charge... The cost of any ATM is a complex mix of rent and
transaction mix (which drives servicing costs, cash replenishment costs etc).
One main driver of difference is whether the ATM is in a branch or in a non‑branch
location. Non-branch sites are more expensive (by an additional 50%) due to the
floor space rental costs.[21]
14.22
A 2007 Reserve Bank study estimated the average cost of an ATM
transaction to a bank at around 75 cents, well below the current predominant
charge of $2.[22]
With fees charged on only about a third or less of withdrawals, the average
direct charge across all withdrawals is a little below the average cost.[23]
14.23
The 2007 study suggested that the solely cash-related costs were around
25 cents, so the cost for a balance enquiry was around 50 cents.[24]
In around a third of cases the charge for a balance enquiry is lower than for a
cash withdrawal, being typically 50 cents to $1.25, but in other cases it is
the same.[25]
14.24
Treasury commented:
There are a number of alternatives to ATM balance enquiries,
including internet and phone banking. A customer is also informed of their
account balance in the course of making a withdrawal. If a transaction is
declined because the customer has insufficient funds, ATM providers are
prohibited by industry rules from making a direct charge. As a consequence,
relatively few customers make balance enquiries for which they are charged.
Data collected by Edgar Dunn & Company indicate that for bank ATMs (where
many transactions are made charge‐free by the bank’s own customers)
around 23 per cent of transactions are balance enquiries. However for
independently owned ATMs (where nearly all transactions are charged), only 6
per cent of transactions are balance enquiries.[26]
14.25
There have been proposals to limit ATM charges to the cost of providing
the service in the United States, where the typical direct charge for using an
ATM is US$1-2, but there are also interchange fees which are passed onto
customers.[27]
There was a varied response in the US to the introduction of direct charging,
with the states of Connecticut and Iowa banning them while fifteen states
passed laws outlawing agreements not to impose them. At a national
level, in 1997 a Republican Senator sought unsuccessfully to have direct
charges banned while in 2010 a Democrat senator sought to limit the charge to
50 cents and ensure that ATM fees bear a 'reasonable relation to the cost of
processing the transaction', which he estimated at 36 cents.[28]
14.26
The Salvation Army supports regulation of ATM fees:
The regulation of ATM fees provides a fairer service when a
customers ‘own-branded’ ATM is not available, which will particularly benefit
rural / remote, elderly and disabled customers who depend on ATM use.[29]
14.27
Unsurprisingly, the Australian Bankers' Association oppose such
regulation. Their then chief executive argued:
Senator Brown's anti-competitive proposal against bank
customers could result in fees being paid by customers to use their own-bank ATMs
because non-customers of the bank would be able to use the ATM service for
free.[30]
14.28
The Committee is aware of reports of people in remote indigenous
communities paying up to $10 per ATM transaction. This is especially a problem for
people do not like to carry large amounts of cash with them so make frequent
withdrawals and to avoid overdrawn account fees need to check account balances
before making withdrawals. This means that they can pay large amounts of ATM
fees relative to their account balances.
14.29
The Reserve Bank has been investigating these reports, including by
travelling to the Alice Springs region to check the veracity of reports of ATMs
charging $10 fees. They described how:
We asked for those who were reporting them to come to us. We
tracked them down. They may have been charging $10 in the past. We did not find
any current evidence anywhere in Australia of a store in a remote community
charging $10 on an ATM.[31]
14.30
Consumer groups were also cognisant of the need to retain incentives for
ATM owners to provide machines in remote areas:
We do not want to see a situation where there are no ATMs
available in certain communities because there is regulation that prevents
operators from making a sufficient return on the machines to actually run them.[32]
14.31
Professor Sathye suggests a possible compromise of restricting the
availability of accounts with no ATM fees to socio-economically vulnerable
consumers.[33]
14.32
The Brotherhood of St Laurence want to distinguish between use of ATMs
to check balances and (the more costly) use to withdraw cash:
...many of our clients wish to use an ATM to check their
account balance so that they do not overdraw the account. Many of these clients
do not have access to internet banking or some other system to check balances.
For some accounts, even checking the account balance via the ATM incurs a fee,
making it difficult for consumers to then use their account in a way that
minimises fees.[34]
14.33
This concern was shared by a parliamentary committee which recommended
that consideration be given:
...to ensuring that the price of obtaining an account balance
is kept to and at the very least is in alignment with the costs associated with
delivering the service.[35]
14.34
The Brotherhood of St Laurence recommends that:
...appropriate regulators be tasked with monitoring the level
of ATM fees to ensure that they are not excessive, and empowered to regulate
such fees should this be necessary.[36]
14.35
Another suggestion is that:
...the RBA require the industry to amend its payment system
clearing rules, to require a real-time warning to be given to consumers on ATM
screens where a penalty fee will be imposed if a particular transaction goes
ahead.[37]
Impact on ATM availability
14.36
Liaison by the Reserve Bank suggests that the move to direct charging
has meant that:
...some of these ATMs have been deployed in locations that
might otherwise have not been viable – including in rural, regional and remote
areas. It is also becoming more common to see ATMs in relatively low‑usage
locations and temporary ATMs at public events. Such ATMs tend to apply
above-average direct charges, but would most likely not have been available
under the previous regime.[38]
14.37
Professor Sathye warns that in the UK the number of ATMs provided has
stagnated, while it has increased in Canada and the US where charging is
allowed, and therefore 'removal of direct charging may have adverse
consequences for consumer welfare in terms of higher transaction costs'.[39]
14.38
A US study of direct charging for ATM use concluded that the charges:
...encourage the deployment of ATMs to areas that are too
expensive for interchange fees alone to support, such as airports, casinos,
football stadiums, and ski resorts.[40]
14.39
Two French academics argue:
Nowadays, the USA and Canada have many more ATMs per
inhabitant than countries in which surcharging [ie direct charges] is not
applied.[41]
14.40
The ATM Industry Reference Group, which represents three companies who
together provide almost half the ATMs operating across Australia,[42]
warn that they rely on direct charges. They warn:
...any externally imposed control on the level of the current
free market of ATM direct charges, even if this only related to one sector of
the industry, could artificially distort the level of competition in the
setting of ATM direct charges with potential unintended consequences that could
ultimately lead to a lower level of ATM service across the nation.[43]
14.41
A similar view is put by the international ATM Industry Association:
Direct Charging fees have allowed ATMs to be economically
viable in both urban and rural areas, providing universal access to cash where
there may be no or little alternative. The removal or capping of ATM fees may
restrict the ability to deploy in rural or other low volume locations reducing
both the growth and potentially the number of ATM locations in rural areas...[44]
14.42
The Government has foreshadowed further reforms, announcing:
The joint Treasury/Reserve Bank Taskforce will report to the
Government in June 2011 on the need for further action...[45]
Socially responsible location of
ATMs
14.43
The National Australia Bank explained:
There has been a growing concern over the supply of the
availability of ATMs in gaming venues as this is believed to exacerbate problem
gambling. NAB does not locate any ATMs in gaming venues, nor does our
affiliated rediATM network – we were quite explicit about this when we
negotiated our agreement.[46]
Committee comment
14.44
The Committee commends the Reserve Bank for requiring ATMs to display
fees before the customer completes the transaction. The Committee hopes this
will in time lead to greater competition and ATM providers will advertise
machines with lower fees. Measures to cap ATM fees would be counterproductive
as they would lead to ATMs being removed from some remote locations. NAB are to
be commended for not locating ATMs in gaming venues and the Committee would
like to see other ATM providers follow their lead.
Recommendation 31
14.45
The Committee recommends that the Australian Payments Clearing
Association and the Australian Bankers' Association encourage their members to have
their ATMs screens display a real-time warning to consumers where a penalty fee
will be imposed if a particular transaction goes ahead.
Recommendation 32
14.46
The Committee recommends that the government deal with the problem of excessive
ATM fees in remote indigenous communities by tendering for an ATM provider to
install a network of ATMs in these areas which make specified minimal charges
for balance enquiries and low charges for cash withdrawals.
Competition in credit card markets
14.47
Interest rates on credit cards in Australia can exceed 21 per cent. The
average rate is 16 per cent. These represent very large margins above the cost
of funds and rates charged on other types of loans.
14.48
A concern for social welfare organisations is bank customers being pushed
into credit cards:
...small-amount consumer credit, which is required by
households to smooth expenditure, particularly related to things like education
costs, whitegoods or vehicles. Over the past years, the banks have shied away
from providing small amount personal loans, instead pushing many onto credit
cards or simply refusing to offer service. For many on low incomes, credit
cards can be a debt trap designed to induce immediate spending without an
affordable, planned repayment schedule...Things like the lowest value personal
loan have increased. Some years it was a smaller amount, maybe only $1,000 or
$2,000. Generally the large banks lend $5,000 or $7,000 for the lowest-value
personal loan.[47]
14.49
There are some pilot programmes catering for low income households:
Some banks, such as ANZ and the National Australia Bank, are
offering small-amount affordable loans in partnership with community agencies.
This is very welcome. These programs have demonstrated that, when provided with
opportunity and support, low-income earners can pay back debt.[48]
14.50
A former Reserve Bank officer is very critical of the structure of the
credit card market:
A moment’s reflection reveals the ‘credit card’ to be simply
a ‘debit card’ to which a line of credit is attached. The deception is about
linking the illusion of free-credit (for 55 days on purchases) and ‘flyer
rewards’ to the imposition of excessive charges on retailers, part of which –
called an interchange fee – is paid to the bank issuing the credit card,
supposedly to fund the ‘free credit’ and ‘rewards’. There is no accounting for
the actual cost to banks of either net ‘free credit’ given to bank customers or
the ‘rewards’ actually redeemed. Deeming to be taxable income the gross value
of these concessions would quickly expose the deception.[49]
14.51
Even an academic whose submission generally opposed interference in the
banking market sees room for improvement in the credit card market:
...the credit card issue. It appears to me that there are still
restrictions on entry to that part of the payment system—that is, it is not
entirely contestable, interest rates seem to be very high and there is an
additional problem of credit card debt that many of the social services
organisations are worried about.[50]
Two possible reforms meriting attention are ensuring that the
minimum monthly payment on credit cards at least covers the interest and other
charges on it and creating a clearing house which looks at the total exposure
of each borrower. Limits could be imposed based on the income, assets, etc. of
the borrower.[51]
14.52
Another submitter was also critical of the lack of competition between
card systems:
MasterCard and Visa have a virtual monopoly...[there should be]
investigation of the fees and charges imposed by credit card providers on both
merchants and consumers.[52]
14.53
Visa responded that it:
...requests internet acquirers to reach a minimum capital
standard before they are permitted to become part of our network...Visa
understands there has been suggestions made to the inquiry that regulation may
be needed to reduce these minimum collateral standards...Visa thinks it would be
extraordinary in the immediate post-GFC environment to seek to put in place any
form of regulatory intervention that would actually reduce the level of
financial system security and stability.[53]
14.54
A possible reason for the apparent lack of competition and high interest
rates on credit cards is that many customers intend to always pay off their
balances in full each month and thereby not pay interest. While it is likely
that many in fact do not exercise this much discipline, it nonetheless means
that they do not shop around for low interest rates. This explanation was
supported for the US market in a detailed study by Ausubel.[54]
In Australia, only 15 per cent of credit card holders apply for a 'low rate'
card and only around 40 per cent say they sometimes pay interest.[55]
14.55
There have been criticisms that the minimum monthly repayments set for
credit cards are too low. Choice gave an example of how high interest rates,
annual fees and low minimum repayments could mean an outstanding balance would
not be paid off after fifty years.[56]
Stating a minimum repayment may influence people not to pay off more than that
amount.[57]
14.56
At one level, offers of initial low interest rates on credit card
balances transferred from one bank to another are a welcome example of
competition. There are, however, some aspects of these offers which are
undesirable for customers not reading the fine print:
Moving the balance is fine, as long as you’re not tempted to
make a purchase on the new card. Any minimum monthly payment is taken from the
low interest debt first (the balance transfer) while the high interest debt is
left to compound. Not paying the full balance at the end of the month (which includes
the balance transfer amount) leads to a loss of the interest free period (on
new purchases) and further compounding of the high interest debt.[58]
14.57
As foreshadowed in its December 2010 announcement, on 24 March 2011 the
Government introduced legislation[59]
to force credit card lenders to allocate repayments to higher interest debts
first,[60]
prevent lenders from charging over-limit fees unless consumers specifically
agree that their account can go over the limit, ban unsolicited credit
extension offers unless pre-agreed to by the consumer and give consumers more
say over their credit limits. The legislation would also introduce a
requirement for lenders to provide a Key Facts Sheet for credit card contracts
that provides a clear summary of the standard terms applicable, including minimum
repayments required to be made, annual percentage rates and fees.
14.58
The Consumer Credit Legal Centre have criticised the bill for only
applying to new rather than existing cards.[61]
Committee view
14.59
The Committee regards the reforms put forward by the Government as
reasonable. It would not support bans on fees but measures to ensure customers
are better informed about the implications of making only the minimum repayment
are welcome.
Other aspects of the payments system
14.60
Some submitters drew attention to the payments system:
...the real areas in which competition is low and super-profits
earned by the banks are in payment systems, including credit card transaction
processing. These areas, in which fees are by international standards very
high, are the principal reason that the underlying profits of the Big Four
banks represent almost 3% of Australia’s GDP.[62]
14.61
A former Reserve Bank officer is very critical of what he terms:
...the failure to deal with the institutionalized cartel
arrangements and related price fixing for credit card, debit card and BPay
transactions.[63]
14.62
Other submitters also saw the payments system as key to competition:
The biggest single regulatory mechanism used to hindering
competition within the banking sector is the control by the four major banks of
the payments system.[64]
14.63
The Reserve Bank acknowledges the challenge that:
...the incumbents in a payment system will have a natural
tendency to keep new entrants out and often might use risk as a justification
for that.[65]
14.64
Direct access to the payments system is denied to most non-banks:
...non-bank providers are effectively locked out of the
electronic funds transmission system, and are unable to settle electronically,
and have to deal with their competition being the banks when providing data for
settlements.[66]
APCA owns the BSB number range and will only release new
numbers to Authorised Deposit-taking Institutions (ADIs). Accounts4Life has a
business model that requires a BSB, yet does not constitute “banking business”
and therefore does not need an ADI licence...the Big 4 can squash any attempt to
allow a new entrant to operate independently and increase competition.[67]
14.65
Tyro Payments, a specialist banking institution supervised by APRA which
provides EFTPOS and some other payment services but does not take deposits or
make loans, comments:
Due to its network nature, the payment industry requires a
strong set of standards and rules to protect the integrity and stability of the
system. However, the standards and rules must also enable innovation and competition.[68]
14.66
Tyro submits that it is the only non-bank acquirer to have applied for a
specialised banking licence since the concept was introduced. Tyro is a tier
one member of the Australian clearing and settlement system. It identifies a
number of areas where it faced barriers to entry.[69]
14.67
A new entrant wanting to process credit card transactions is unlikely to
have a rating from an agency and Visa and Mastercard then demand the entrant
has additional capital. Tyro argues that they should be satisfied if the
entrant is licensed by the Reserve Bank and supervised by APRA.
14.68
New entrants to the EFTPOS debit card network are required to connect to
all members bilaterally which Tyro does not regard as commercially viable.
14.69
Tyro noted that the two major supermarket chains 'benefit from
interchange fees that can be up to one half of what merchants in general are
charged'.[70]
14.70
The domestic debit card (EFTPOS) system is governed by EFTPOS Payments
Australia Limited (EPAL) which Tyro claims is dominated by card issuers and the
major retailers. This leads to concerns that interchange fees charged to
smaller retailers will be pushed up. The system is also lagging behind overseas
schemes in its technical capacity, lacking features such as 'tap and go'.
14.71
Tyro has long aspired to gain access to the private health fund claiming
market but this is dominated by a major bank.
14.72
The Electronic Funds Transfer Code of Conduct is a voluntary code that
provides protection for consumers who use electronic means for making payments,
including ATMs, EFTPOS, credit cards, online payments, internet banking and
eBay. The code provides key consumer protections in the case of fraud and on
unauthorised transactions.
14.73
Tyro is concerned about EFTPOS interchange fees:
...we are focused on acquiring only so we do not have the
conflict of interest that the major banks have to maximise their interchange
revenue at the expense of the merchants. Thus, it does not come as a surprise
that we are the only ADI that questions the looming reversal and increase of the
EFTPOS interchange fee that threatens the small and medium enterprise community
with an additional burden of up to $¼ billion.[71]
14.74
Tyro also called for real-time settlements to make payments systems more
efficient and less risky:
...the industry should move to real-time settlement; it is
unnecessary risk. When we aspired to membership of BECS, some of the banks
refused to accept us, claiming we were a risk to the system given our modest
balance sheet. So we would argue: why don’t you use intelligent processes and
information technology so that you can mitigate and eliminate the risk?[72]
14.75
A new entrant specialising in some aspect of the payments system may
struggle against the major banks who cross-subsidise activities through
bundling:
...when a major bank settles its merchants a day earlier than
our merchants, it means that it bundles the acquiring function with the
transaction account. There is a bank that offers same-day settlement to its
merchants if they have the transaction account and the acquiring relationship
with them. They can do this because they do not go through your systems—the
batch systems.[73]
14.76
Banks try to ensure merchants have all their banking relationships with
the one bank, rather than just providing loans or just providing payment
services:
We certainly have customers who only utilise merchant
facilities within our base. But, obviously, a key objective of ours is to
deepen the relationships that we have with our customers and therefore provide
broader services.[74]
14.77
A concern raised by small business as an example of banks colluding to
maintain a poor service, concerns the payments system:
...the behaviour by the major banks not to provide daily
settlement of EFTPOS transactions by way of credits to merchants' accounts. It
appears to be a concrete example of anticompetitive behaviour. The banks choose
only to settle EFTPOS transactions on five days each week in a seven day
commercial market. This unreasonably denies merchants access to their money.[75]
14.78
A specific shortcoming raised was the delay between when funds are
debited from a customer's account and when the proceeds of the transaction are
credited to the retailer's account. This generally takes a day, and for smaller
retailers can take several days. This appears to be a result of the banks not
agreeing to undertake the expense of installing better technology and agreeing
protocols for its use:
It is an historical thing and it needs further development to
do that and there is the question of what is the cost of doing that and what is
the best way of doing that...a problem that is common in this area, that what you
often need to do to get the network to provide better functionality is to have
everybody who is part of that network to move towards the same goal and often
times you need a degree of coordination...[76]
14.79
There is an understandable suspicion that the bank is gaining from the
delay, perhaps being able to earn interest on the short-term money market for
the period the payment is in transit.
14.80
The Reserve Bank assured the Committee that this is not the case:
The funds are moved from one customer’s account to another
customer’s account through this system and there might be some delay between
when a payment instruction is sent and when that money is finally available at
the other end for the receiving customer to take those funds out of their
account if they so choose, but there is a point in time which is part of the
arrangement where the exchange is deemed to have occurred and that is the point
at which interest is calculated if any is being paid.[77]
Committee view
14.81
The Committee is concerned about claims that the payments system
operates like a closed shop and would like to see more new entrants to it and
greater competition in the provision of payments, clearing and settlement
services. It believes this would accelerate the adoption of world class
technology and real time settlement systems, to the benefit of bank customers.
Recommendation 33
14.82
The Committee recommends that the Government direct the Australian
Competition and Consumer Commission to conduct an examination of barriers to
competition in the Australian payments system and publicly report by the end of
2011 on any legislative or other reforms that would enhance competition and
efficiency in the provision of payment, clearing and settlement systems.
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