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Administered by: Treasury
Published Date 09 Dec 2015

RESERVE BANK OF AUSTRALIA

Payment Systems (Regulation) Act 1998

Draft Standard relating to Scheme Rules Relating to Merchant Pricing for Credit, Debit and Prepaid Card Transactions

This notice is published in accordance with the requirements set out in Section 28(2)(a) of the Payment Systems (Regulation) Act 1998 (the Act).

The Reserve Bank of Australia proposes to determine a standard to apply to designated card payment systems in Australia. The standard would replace Standard No 2: Merchant Pricing for Credit Card Purchases and would replace paragraphs 9 and 10 and sub-paragraphs 12 (i), (ii) and (iii) of the standard titled The ‘Honour All Cards’ Rule in the Visa Debit and Visa Credit Card Systems and the ‘No Surcharge’ Rule in the Visa Debit System.

The standard would apply to:

·         the American Express companion card system

·         the eftpos debit and prepaid card systems

·         the MasterCard credit, debit and prepaid card systems

·         the Visa credit, debit and prepaid card systems

Summary of purpose and effect of the draft Standard

The purpose of this new standard is to improve efficiency and competition in the Australian payments system by providing better price signals to cardholders about the relative costs of different payment methods. Different payment methods can have very different payment costs to merchants, and cards that provide significant rewards to consumers are typically significantly more expensive for merchants. When merchants have the right to surcharge on more expensive payment methods they are able to provide price signals to consumers and encourage the use of less expensive payment methods. By helping to hold down payment costs, the right to surcharge helps to hold down the price of goods and services charged to all consumers and reduces the extent of subsidisation between those who pay with cheaper payment methods and those who use more expensive methods.

It is important, however that merchants do not impose surcharges in excess of their actual payment costs. Accordingly, the Board is proposing to introduce a new surcharging standard with the aim of ensuring that customers cannot be surcharged any more than the actual cost of accepting cards. The proposed standard preserves the right of merchants to surcharge for more expensive payment methods but provides greater clarity about the maximum permissible surcharge.

The draft standard envisages the following framework for surcharging of card payments:

·         Card schemes will not be permitted to prevent merchants from recovering part or all of the costs of accepting card payments.

·         Card acceptance costs will be defined more narrowly than in the Bank’s current guidance note, as the merchant service fee and other fees paid to the merchant’s bank (or payment facilitator).

·         Statements provided by banks to merchants will be required to contain easy-to-understand information on the average cost of acceptance for each payment method.  For most merchants this statement information will indicate the maximum permissible surcharge if the merchant chooses to surcharge.

·         These statements will express acceptance costs in percentage terms, except where a merchant’s cost of acceptance for a particular payment method is fixed across all transaction values. This should ensure that merchants that wish to surcharge will typically do so in percentage terms rather than as a fixed dollar amount.

Submissions

Interested parties are invited to make submissions on the proposed Standard and the Reserve Bank’s consultation document, Review of Card Payments Regulation: Consultation Paper, available on the Reserve Bank’s website www.rba.gov.au.

Submissions should be made by 3 February 2016 to:

PYSubmissions@rba.gov.au

or

Head of Payments Policy
Reserve Bank of Australia
GPO Box 3947
Sydney NSW 2001

 

Signed

 

 

Glenn Stevens
Governor
Reserve Bank of Australia
Date: 8 December 2015


 

Draft Standard No. 3 of [   ]

SCHEME RULES RELATING TO Merchant Pricing for Credit, DEBIT and Prepaid Card TRANSACTIONs

1.             Objective

The objective of this Standard is to promote:

·                efficiency; and

·                competition

in the Australian payments system by providing for scheme rules that require participants to give merchants the freedom to make a charge for accepting payment of a particular type that reflects the cost to the merchant of accepting that payment type.

2.             Application

2.1          This Standard is determined under Section 18 of the Payment Systems (Regulation) Act 1998 (the Act).

2.2          This Standard applies to:

(a)           the payment system operated within Australia known as the MasterCard system, which was designated under the Act as a payment system on 12 April 2001 and which is referred to in this Standard as the MasterCard System;

(b)          the payment system operated within Australia known as the VISA system, which was designated under the Act as a payment system on 12 April 2001 and which is referred to in this Standard as the VISA System;

(c)           the American Express Companion Card payment system operated within Australia, which was designated under the Act as a payment system on 15 October 2015 and which is referred to in this Standard as the American Express Companion Card Scheme;

(d)          the payment system operated within Australia known as VISA Debit, which was designated under the Act as a payment system on 23 February 2004 and which is referred to in this Standard as VISA Debit;

(e)          the payment system operated within Australia known as Debit MasterCard, which was designated under the Act as a payment system on 15 October 2015 and which is referred to in this Standard as Debit MasterCard;

(f)            the debit card payment system operated within Australia known as the EFTPOS payment system, which was designated under the Act as a payment system on 12 June 2012 and which is referred to in this Standard as the EFTPOS System;

(g)           the prepaid card payment system operated within Australia under the EFTPOS Scheme Rules, which was designated under the Act as a payment system on 15 October 2015 and which is referred to in this Standard as EFTPOS Prepaid;

(h)          the payment system operated within Australia known as MasterCard Prepaid, which was designated under the Act as a payment system on 15 October 2015 and which is referred to in this Standard as MasterCard Prepaid; and

(i)             the payment system operated within Australia known as VISA Prepaid, which was designated under the Act as a payment system on 15 October 2015 and which is referred to in this Standard as VISA Prepaid,

each of which is referred to in this Standard as a Scheme.

2.3          In this Standard:

Acquired or Acquiring includes accepted or accepting;

Acquirer means a participant in a Scheme in Australia that:

(a)           provides services, directly or indirectly, to a Merchant to allow the Merchant to accept a Card of that Scheme; or

(b)          is a Merchant that accepts, or is a Related Body Corporate of a Merchant that accepts, a Card of that Scheme and bears the risk as principal in relation to the payment obligations of the Issuer of that Card in relation to that acceptance;

BIN means a Bank Identification Number or an Issuer Identification Number;

Card, Card of a Scheme or Card of that Scheme means a Credit Card of a Scheme, Debit Card of a Scheme or Prepaid Card of a Scheme;

Card Transaction means a Credit Card Transaction, Debit Card Transaction or Prepaid Card Transaction;

Commencement Date has the meaning given in clause 2.7;

Cost of Acceptance has the meaning given in clause 3.2;

Credit Card, Credit Card of a Scheme or Credit Card of that Scheme means, in relation to a Scheme, a Device that can, under the Rules of the Scheme be used in Australia for purchasing goods or services on credit (irrespective of whether the Device is issued in or outside Australia);

Credit Card Scheme means the American Express Companion Card Scheme, the MasterCard System or the VISA System;

Credit Card Transaction means, in relation to a Credit Card Scheme, a transaction in that Scheme between a holder of a Credit Card of that Scheme and a Merchant involving the purchase of goods or services using a Credit Card of that Scheme that is Acquired by an Acquirer and includes any transaction to reverse such a transaction or provide a credit or make a chargeback in relation to such a transaction;

Debit Card, Debit Card of a Scheme or Debit Card of that Scheme means, in relation to a Scheme, a Device that can, under the Rules of the Scheme, be used in Australia to make payments to Merchants for goods or services by accessing a deposit account held at an authorised deposit-taking institution or a bank or other financial institution (irrespective of whether the Device is issued in or outside Australia);

Debit Card Scheme means Debit MasterCard, the EFTPOS System or VISA Debit;

Debit Card Transaction means, in relation to a Debit Card Scheme, a transaction in that Scheme between a holder of a Debit Card of that Scheme and a Merchant involving the purchase of goods or services (whether or not it also involves the obtaining of cash) using a Debit Card of that Scheme that is Acquired by an Acquirer and includes any transaction to reverse such a transaction or provide a credit or make a chargeback in relation to such a transaction;

Device means any card, plate or other payment code or device, including a code or device where no physical card is issued and a code or device used or to be used for only one transaction;

EFTPOS Scheme Rules means the rules promulgated under the constitution of EFTPOS Payments Australia Limited (ABN 37 136 180 366) and any schedule, document, specification or rule published by EFTPOS Payments Australia Limited pursuant to those rules;

Financial Year means a period from 1 July to the following 30 June;

Issuer means an entity that issues Cards of a Scheme to its customers;

Merchant means in relation to a Scheme a merchant in Australia that accepts a Card of that Scheme for payment for goods or services;

Merchant Service Fee means a transaction-based fee charged to a Merchant by an Acquirer for Acquiring, or by a Payment Facilitator for arranging the Acquisition of, one or more types of Card Transaction from that Merchant whether collected on an ad valorem or flat-fee basis, or charged as a blended rate across more than one type of Card Transaction or on an interchange plus acquirer margin basis or any other basis;

Payment Facilitator means an entity with an arrangement with an Acquirer, and arrangements with one or more Merchants, through which the entity arranges or procures for the Merchant(s) Acquiring services from the Acquirer;

Prepaid Card, Prepaid Card of a Scheme or Prepaid Card of that Scheme means, in relation to a Scheme, a Device that can be used in Australia, under the Rules of the Scheme, to make payments for goods or services using a store of value that has been prepaid or pre-funded and is accessible to make payments for goods or services only through the use of that, or a linked or related, Device (irrespective of whether the Device is issued in or outside Australia);

Prepaid Card Scheme means EFTPOS Prepaid, MasterCard Prepaid or VISA Prepaid;

Prepaid Card Transaction means in relation to a Prepaid Card Scheme a transaction in that Scheme between a holder of a Prepaid Card and a Merchant involving the purchase of goods or services (whether or not it also involves the obtaining of cash) using a Prepaid Card relating to that Scheme and includes any transaction to reverse such a transaction or provide a credit or make a chargeback in relation to such a transaction;

Related Body Corporate has the meaning given in the Corporations Act 2001;

Rules of a Scheme or Rules of the Scheme means the constitution, rules, by-laws, procedures and instruments of the relevant Scheme, and any other arrangement relating to the Scheme by which participants in that Scheme consider themselves bound;

Scheme Pair means:

(a)           VISA Debit and VISA Prepaid;

(b)          Debit MasterCard and MasterCard Prepaid; or

(c)           EFTPOS System and EFTPOS Prepaid.

Statement Period has the meaning given to it in clause 5.1(b) of this Standard;

Surcharge means, in respect of any Card Transaction, any of the following, however named or described:

(a)           any amount levied, charged or imposed in addition to the price of the goods or services purchased by means of the Card Transaction; or

(b)          an increase to the price of the goods or services purchased by means of the Card Transaction that is levied, charged or imposed,

by a Merchant on or to the holder of the relevant Card (or the holder of the account on which the relevant Card was issued) because the purchase of the relevant goods or services was effected using the relevant Card or that would not be levied, charged or imposed by that Merchant if the purchase of the relevant goods or services was effected otherwise than by using a Card;

include or including or such as when introducing an example do not limit the meaning of the words to which the example relates to that example or examples of a similar kind; and

terms defined in the Act have the same meaning in this Standard.

2.4          Each participant in a Scheme must do all things necessary on its part to ensure compliance with this Standard.

2.5          If any part of this Standard is invalid, it is ineffective only to the extent of such part without invalidating the remaining parts of this Standard.

2.6          This Standard is to be interpreted:

(a)           in accordance with its objective; and

(b)          by looking beyond form to substance.

2.7          This Standard comes into force on [   ] (the Commencement Date).

2.8          On the date 4 calendar months after the Commencement Date this Standard replaces each of the following Standards or parts of Standards:

(a)           each of Standard No. 2 Merchant Pricing for Credit Card Purchases which applied to the MasterCard System and Standard No. 2 Merchant Pricing for Credit Card Purchases which applied to the VISA System; and

(b)          paragraphs 9 and 10 and sub-paragraphs 12 (i), (ii) and (iii) of The Honour All Cards Rule in the Visa Debit and Visa Credit Card Systems and the No Surcharge Rule in the Visa Debit System Standard.

3.             Merchant Pricing

3.1          From the date 4 calendar months after the Commencement Date neither the Rules of a Scheme nor any participant in a Scheme shall prohibit:

(a)           a Merchant from recovering, by charging a Surcharge to a holder of a Card of a Scheme at any time, an amount that does not exceed the Permitted Surcharge for that Merchant and that Scheme at that time; or

(b)          a Merchant, in recovering part or all of the Cost of Acceptance of Cards of the Scheme, from applying different Surcharges to the holders of Cards of different Schemes (except that, in relation to a Scheme Pair, the Rules of a Scheme may require that if a Surcharge is applied to the holders of Cards of one Scheme in the Scheme Pair, any Surcharge applied to the holders of Cards of the other Scheme in the Scheme Pair must be the same).

3.2          The Permitted Surcharge for a Merchant and a Scheme at any time is:

(a)           if the contract in effect between the Merchant and its Acquirer or Payment Facilitator at that time for Acquiring services in relation to Cards of that Scheme provides that the Merchant will be charged for each Card Transaction at that time using a Card of that Scheme a single fee or charge that covers some or all of the elements in sub-paragraphs (i) to (iv) inclusive of paragraph (b) or (c) (as applicable) of clause 3.3 (Permitted Cost of Acceptance Elements) and no other fees, costs or expenses (an All Inclusive Charge), an amount equal to that All Inclusive Charge; or

(b)          if the contract in effect between the Merchant and its Acquirer or Payment Facilitator at that time for Acquiring services in relation to Cards of that Scheme does not provide for an All Inclusive Charge, then the average of the Cost of Acceptance of Cards of the Scheme during the Statement Periods in a 12 month period that begins on the first day of a Statement Period and ends on the last day of a Statement Period, where that last day is not more than 13 months before that time; or

(c)           if the contract in effect between the Merchant and its Acquirer or Payment Facilitator at that time for Acquiring services in relation to Cards of that Scheme does not provide for an All Inclusive Charge, and the Merchant does not at that time have the Cost of Acceptance of Cards of the Scheme for the Statement Periods in a 12 month period preceding that time, then:

(i)            if at that time the Merchant has the Cost of Acceptance of Cards of the Scheme for one or more Statement Periods that ended not more than 11 months before that time, the Cost of Acceptance of Cards of the Scheme over any such Statement Period; or

(ii)           if at that time the Merchant does not have the Cost of Acceptance of Cards of the Scheme for one or more Statement Periods that ended not more than 11 months before that time, an estimate of the average cost of acceptance of a Card of the Scheme calculated by the Merchant in good faith, for a period determined by the Merchant that does not exceed 3 months, using only known or estimated Permitted Cost of Acceptance Elements and card transaction volumes for Cards of the Scheme.

3.3          For the purposes of clauses 3.1, 3.2 and 5.1(b):

(a)           a Merchant’s Permitted Surcharge to holders of Cards of a Scheme must be determined by reference to either:

(i)            where the Merchant applies the same Surcharge to Cards of more than one Scheme, the Permitted Surcharge of the Scheme with the lowest Permitted Surcharge as amongst the Cards of the Schemes to which that Surcharge relates; or

(ii)           otherwise, the Permitted Surcharge of the Cards of the Scheme;

(b)          Cost of Acceptance means for a Statement Period, in relation to a Merchant's acceptance of a Credit Card of a Scheme, the average cost per Credit Card Transaction calculated for the Statement Period using only the following amounts payable by the Merchant in respect of that Credit Card Scheme to the entity that was its Acquirer or Payment Facilitator, as the case may be, during the Statement Period:

(i)            the applicable Merchant Service Fee or fees in respect of the Credit Card Scheme;

(ii)           fees for the rental and maintenance of payment card terminals that process Cards issued under that Credit Card Scheme;

(iii)         fees incurred in processing Credit Card Transactions undertaken in that Credit Card Scheme and levied by the Acquirer or Payment Facilitator including international service assessments or cross-border transaction fees; and

(iv)         other fixed fees for providing payment acquiring equipment and services referable to that Credit Card Scheme (whether alone or with other Schemes), being other fees that are included on the Merchant's card processing statement;

(c)           Cost of Acceptance means for a Statement Period, in relation to a Merchant's acceptance of a Card of a Scheme that is part of a Scheme Pair, the average cost per Card Transaction across the Scheme Pair calculated for the Statement Period using only the following amounts payable by the Merchant in respect of the Schemes in the Scheme Pair to the entity that was its Acquirer or Payment Facilitator, as the case may be, during the Statement Period:

(i)            the applicable Merchant Service Fee or fees in respect of those Schemes;

(ii)           fees for the rental and maintenance of payment card terminals that process Cards issued under those Schemes;

(iii)         fees incurred in processing Card Transactions undertaken in those Schemes and levied by the Acquirer or Payment Facilitator including international service assessments or cross-border transaction fees; and

(iv)         other fixed fees for providing payment acquiring equipment and services referable to those Schemes (whether alone or with other Schemes that are not in the Scheme Pair), being other fees that are included on the Merchant's card processing statement; and

(d)          where a cost referred to in paragraph (b) or (c) above is not levied or charged on a per transaction basis and is not referable to Card Transactions undertaken in a single Scheme (in the case of paragraph (b)) or Scheme Pair (in the case of paragraph (c)) (for example, a fixed monthly terminal rental cost that allows Card Transactions under more than one Scheme to be made), that cost is to be apportioned among the relevant Schemes and Scheme Pairs (as the case may be) for the purpose of determining Cost of Acceptance under paragraph (b) or (c), as applicable, on a pro-rata basis based on the value of the Card Transactions under the relevant Schemes or Scheme Pairs (as applicable) over the period to which the cost relates as a proportion of the total value of Card Transactions to which the cost relates over that period (in each case, the value of the Card Transactions excludes the amount of any cash obtained by the holder of the Card of the Scheme as part of the Card Transactions).

4.             Card Identification

4.1          All Debit Cards issued after [date] in Australia by a participant in a Debit Card Scheme that are capable of being visually identified as Debit Cards must be so identified. All Prepaid Cards issued after [date] in Australia by a participant in a Prepaid Card Scheme that are capable of being visually identified as Prepaid Cards must be so identified.

4.2          All Debit Cards issued in Australia by a participant in a Debit Card Scheme must be issued with a BIN that allows them to be electronically identified as Debit Cards. All Prepaid Cards issued after [date] in Australia by a participant in a Prepaid Card Scheme in Australia must be issued with a BIN that allows them to be electronically identified as Prepaid Cards.

4.3          Without limiting clause 4.2:

(a)           on request by a Merchant (whether made directly or through a Payment Facilitator), an administrator of a Scheme in Australia or an Acquirer that Acquires both Credit Card Transactions and Debit Card Transactions for that Merchant, must provide to the Merchant, BINs that permit the Merchant to separately identify Credit Card Transactions and Debit Card Transactions electronically; and

(b)          from [date], on request by a Merchant (whether made directly or through a Payment Facilitator), an administrator of a Scheme in Australia or an Acquirer that Acquires Card Transactions of more than one Scheme for that Merchant must provide to the Merchant BINs that permit the Merchant to separately identify Card Transactions of each applicable Scheme electronically.

5.             Transparency

5.1          Subject to clause 5.2:

(a)           each Acquirer must before, or as soon as practicable after, the Commencement Date notify in writing each Merchant for which the Acquirer directly or indirectly provides Acquiring services of the provisions of this Standard and of the frequency of the provision of statements referred to in paragraph (b) below (which must be not more than 3 months); and

(b)          from the Commencement Date each Acquirer must issue statements to each Merchant for which the Acquirer provides Acquiring services, directly or indirectly, no less frequently than every 3 months. Each such statement must set out:

(i)            the dates on which the period covered by the statement begins and ends (Statement Period). For that purpose, for all statements except the first, the date a statement period begins must be the day after the day the immediately previous statement period ends;

(ii)           for the relevant Statement Period:

(A)     the Cost of Acceptance for the Merchant of:

(1)      Credit Cards of each applicable Credit Card Scheme; and

(2)      Debit Cards and Prepaid Cards of each applicable Scheme Pair,

over the Statement Period;

(B)      each Cost of Acceptance described in paragraph (A) above must be expressed as a percentage of the value of Card Transactions undertaken in each applicable Scheme or Scheme Pair in the Statement Period, unless the Merchant’s Cost of Acceptance of Cards of the relevant Scheme or Scheme Pair is a fixed amount with no variable or ad valorem component; and

(iii)         if it is the statement for the last full Statement Period within a Financial Year, the average of the Cost of Acceptance for the Merchant over the 12 month period ending on the last day of that Statement Period (an Annual Period) of:

(A)     Credit Cards of each applicable Credit Card Scheme; and

(B)      Debit Cards and Prepaid Cards of each applicable Scheme Pair,

and each such average Cost of Acceptance for the Annual Period must be expressed as a percentage of the value of Card Transactions undertaken in each applicable Scheme or Scheme Pair in the Annual Period, unless the Merchant’s Cost of Acceptance of Cards of the relevant Scheme or Scheme Pair for each Statement Period during the Annual Period was a fixed amount with no variable or ad valorem component.

5.2          An Acquirer will not contravene clause 5.1 of this Standard if:

(a)           the Acquirer provided Acquiring services to the Merchant indirectly via a Payment Facilitator;

(b)          prior to the time the Acquirer was required to notify or give a statement under clause 5.1 of this Standard, it entered into a written agreement with the Payment Facilitator which obliged the Payment Facilitator to provide the notice and statements described in clauses 5.1(a) and 5.1(b) at the times described in those clauses;

(c)           after conducting due inquiries of the Payment Facilitator before that agreement was entered into, the Acquirer was satisfied that the Payment Facilitator had sufficient processes in place to provide those notices and statements at the times described in clauses 5.1(a) or 5.1(b) (as applicable); and

(d)          after entering into that agreement and prior to the time the notice or statement (as the case may be) was required to be sent, the Acquirer had not had cause to suspect that the notice or statement would not be sent to the Merchant by the Payment Facilitator in accordance with clauses 5.1(a) or 5.1(b) (as applicable).