03 Sep 2007
At its meeting on 27 August 2007, the Payments System Board considered
an industry-developed proposal for reform of the ATM system in Australia.
The proposal involves liberalising access to the ATM system and making
pricing more transparent to users of ATMs. It has been developed by the
Australian Bankers' Association (ABA) and its members, and has benefited
from widespread input following industry-wide meetings facilitated by the
Reserve Bank.
The key elements of the proposal are:
* the
development of an objective and transparent access code by the Australian
Payments Clearing Association (APCA), setting out the conditions that new
entrants are required to meet, the rights of new entrants, and
the requirements on current participants in dealing with new entrants;
* the clear disclosure of any charges levied by the ATM owner before
the customer proceeds with a withdrawal, with the customer able to cancel
the transaction at no cost; and
* the abolition of the bilateral
interchange fees paid by banks and other financial institutions to ATM owners
for the provision of ATM services.
These fees - which average around $1 per
transaction - are neither transparent to customers nor subject to the normal
forces of competition. With these fees abolished, ATM owners will be free to
charge customers who use their ATMs but must disclose the fee, increasing the
overall
transparency of pricing.
Under this proposed reform model,
multilateral interchange fees in sub-networks - either those currently in
existence (in the Rediteller and Cashcard networks) or those that may form in
the future - would be possible. However, the Board's view is that if such
fees exist, they should be publicly disclosed. In addition, the rules that
govern access to sub-networks should be transparent and objective and not
impair efficiency and competition in the payments system.
While an
industry agreement has been reached on the broad shape of the reform model, a
number of technical details still need to be finalised. One of these is how
best to give certainty to a system of zero interchange fees. While the Board
would be prepared to consider designation of the ATM system and the setting
of these fees to zero through an access regime, this is not its preferred
approach. Instead, the Board is encouraging industry participants to address
this issue directly, perhaps as part of the implementation of the new access
rules being developed by APCA.
As to timing, the Board recognises that
the proposed reforms represent a significant change to the ATM system in
Australia, and that financial institutions need adequate time to change
systems and communicate with their customers. The ABA has suggested a
starting date for direct charging of the end of 2008, while others have
suggested that the reforms could be implemented more quickly. On balance, the
Board is of the view that 12 months should be enough time for the relevant
framework to be in place and therefore expects that the new regime would commence no later than 1 October 2008. The Board is also asking the ABA and
APCA to provide it with quarterly reports on progress in implementing the
reforms. These progress reports will be made public.
The Board
welcomes the proposed reform model which meets the public policy concerns
identified in November 2005. When implemented, these reforms
will significantly increase the transparency to consumers of the fee charged
for withdrawing cash from an ATM. Consumers will be able to see the fee
charged by the ATM owner on the screen of the ATM at the time of the
transaction, and will be given the option of cancelling the transaction if
the fee is too high. Also, the Board expects that the removal of the hidden
interchange fees will lead to substantial reductions in, and perhaps the
abolition of, the 'foreign' fees that most banks currently charge their
customers for using ATMs owned by another institution.
The reforms
are also expected to lead, over time, to more ATMs in a wider variety of
locations, increasing choice to consumers. They are also likely to promote
increased competition in the provision of ATM services, with new ATM
operators more easily able to enter the system to provide ATMs in both new
and existing locations.
The Board acknowledges the significant
concessions made by some industry participants in reaching agreement on this
reform package. Although the process has taken some time, the reforms
represent a successful example of the industry and the Bank working together
to improve competition and efficiency in the Australian payments system.
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