A Guide to the Card Payments System Reforms

When most cardholders swipe a card at a retailer to purchase goods and services, they are probably unaware of what happens behind the scenes between the time the card is swiped and when the merchant is finally paid. There is, however, a detailed set of arrangements between financial institutions that ensure that the merchant is paid and the cardholder’s account debited. Historically, these arrangements have been very opaque. But since 2000, the Bank has undertaken a detailed analysis of these arrangements and their implications for the efficiency of the Australian payments system. As a result of this work, the Bank has progressively introduced a number of reforms to card payment systems which have had an impact on both cardholders and merchants accepting payment cards. Among other things, these reforms have altered the prices that cardholders face when using debit and credit cards, reducing the incentive to use a higher-cost payment method (credit cards) instead of a lower-cost payment method (EFTPOS). Michele Bullock*