Interchange in Australia - Global Implications

Interchange in Australia - Global Implications

Introduction
 
This briefing considers the background to and impacts of the interchange developments in Australia. It then considers how competitors have reacted to the changes and the implications for the Australian market. The third chapter of the report considers how overseas competitors can learn from strategies employed by their Australian counterparts as they too face up to interchange reforms.
 

 
Scope
 
Covers credit card, EFTPOS, Visa Debit and ATM interchange
 
Focuses on interchange in Australia with coverage of interchange developments in the UK, Europe and the US
 
Highlights
 
As the interchange reforms have cut revenues from transactors the challenge for Australian issuers is to encourage more cardholders to revolve a balance. Increasingly, introductory offers are being used for this purpose in the hope that cardholders will continue to revolve a balance beyond the end of the introductory period.
 

 
Loyalty scheme cut backs have been the most dramatic impact of the Australian interchange reforms. As a cardholder it is now simply not possible to enjoy the same loyalty benefits as could be enjoyed prior to the reforms without incurring a higher annual fee and in some cases applying for an additional card.
 

 
There is a lesson for overseas regulators in the Australian example. It must be anticipated that affected parties will try to find ways round regulations even if doing so means entering 'grey' areas of what should and should not be regulated.
 

 
Reasons to Purchase
 
Learn about the impacts of interchange reforms on the Australian market
 
Identify responses to interchange reforms for different payments stakeholders
 
Examine the impact of interchange reforms on consumers' card preferences
 

TABLE OF CONTENTS
 
INTRODUCTION 6
 
What is this report about? 6
 
Who is the target reader? 7
 
How to use this report 7
 
BACKGROUND 9
 
Payment card growth in Australia 9
 
The number of credit card accounts in Australia now surpasses 10 million 9
 
The number of debit cards in Australia has now surpasseed 25 million 11
 
What is interchange? 12
 
Credit card interchange 12
 
Debit card interchange 14
 
ATM interchange 15
 
The Australian interchange reforms 16
 
Credit card interchange 16
 
Debit card/EFTPOS interchange 22
 
ATM interchange 30
 
OUTCOMES 32
 
Pricing 32
 
The response of Australia’s largest card issuers 33
 
Commonwealth Bank 33
 
Westpac 35
 
National Australia Bank 37
 
ANZ 38
 
St George 39
 
A successful response? 40
 
The significance for the Australian credit card market 43
 
The response of American Express and Diners Club 45
 
The impact of the surcharging and access reforms 46
 
Surcharging is now possible but not common 46
 
The access reforms have not led to a rush of entrants into the Australian market 47
 
GLOBAL IMPLICATIONS 49
 
Interchange in the UK 49
 
Background 49
 
Current state of play 50
 
Interchange in Europe 51
 
Background 51
 
Current state of play 52
 
Global implications of the Australian interchange reforms 52
 
Substantial reductions in interchange have significant impacts on markets 52
 
Interchange reforms have significant impacts upon consumers 53
 
Interchange reforms will alter the structure of a credit card market 56
 
APPENDIX 59
 
Supplementary data 59
 
Definitions 59
 
Future readings 61
 
Relevant links 61
 
Datamonitor’s custom research capabilities 62
 
SPP writing team 63
 
How to contact experts in your industry 64