Reserve Bank of Australia (RBA) is pushing ahead the proposed Electronic Funds Transfer at Point of Sale (EFTPOS) reform designed to reverse the downfall of the system which is triggered by the rapid growth of credit card use.

Speaking at the Australasian Institute of Banking and Finance industry forum last week, Reserve Bank governor Ian Macfarlane elaborated on consumers’ preference on credit cards uses and urged industry-wide acceptance for the EFTPOS reform.

“Without the proposed reforms, we could see a gradual withering away of the EFTPOS system so that the merchants would face a larger and larger proportion of their sales taking place using the higher-cost credit-card system.” Mr. Macfarlane said.

He believed there had been a large shift towards the use of credit cards in Australia. With credit card transactions growing at 20 to 30 per cent for the last five years, while EFTPOS uses growth fell to less than 10 per cent per year.

Consumers had favored the use of credit cards over debit cards because cardholders were under the perception that using a credit card was free and complemented with reward “points” which is largely financed by the interchange fees – transaction fees paid between the cardholder's and the merchant's banks.
Under the current system, credit cards are more expensive for merchants to accept than EFTPOS payments. The end result would be an increase in merchants’ overall payment costs and ultimately increasing the general price level.

If the proposed reform is implemented, the maximum interchange fee in the EFTPOS system will be reduced to around 5 cents per transaction compared to the current level of around 20 cents.

The Reserve Bank estimated the planned reform will remove $AU170 million in annual fees charged to consumers. The changes are likely to introduce a more competitive EFTPOS fees structure to cardholders and provide greater incentive for financial institutions to promote this lower-cost system.

In RBAs EFTPOS reform consultation document, it elaborated on the benefits of the reform to the society – encouraging more use of cheaper payment choice would reduce merchants’ overall costs and in turn put downward pressure on the overall level of prices for goods and services.

The governor said one of the longer-term aims of the RBAs reforms was to reduce the distortions in the payments system.

“We have the high-cost means of payment [Credit Card] driving out the low-cost one [EPTPOS].

“At the Reserve Bank, we are in favor of a retail payments system that provides users with a wide choice of options from a wide range of providers. Each payments method has its strengths and weaknesses, and so users should be able to choose the most suitable payments method for each particular type of transaction.”

The RBAs Payment System Board released the proposed EFTPOS reform document for public comment last month and interested parties have until end of April to respond to the proposed changes.