Press Office

Back to Press Office

Sydney, 19 September 2007 - Evidence demonstrates that five years after the Reserve Bank of Australia (RBA) regulated the payments industry the RBA’s objectives to improve efficiencies remain largely unachieved.

In fact, evidence submitted by MasterCard to the RBA's review of the payments systems regulations show that far from reducing costs to consumers the combination of increased annual fees, a reduction in loyalty point benefits and the increased prevalence of merchant surcharging at the point of sale actually means cardholders have been disadvantaged.

Other intended and unintended impacts of the regulation include:

• No evidence of a reduction in the prices consumers pay for goods despite a reduction in Merchant Service Fees (MSF – which the acquiring bank charges a merchant) of more than 0.60 per cent. That equates to around $1 billion over the five years since the regulation;
• A further widening of the gap between the average MSF of the regulated (MasterCard) and unregulated (American Express and Diners Club) schemes; and
• The increasing prevalence surcharging of credit card transactions by merchants, with some examples of price-gouging.

Senior Vice President of MasterCard Australia Leigh Clapham said the unintended impact of the RBA’s regulation simply underlines the fact that strong competition is superior to direct regulation.

"MasterCard believes that the RBA should focus on facilitating workable competition between payments schemes instead of wasting its time on directly regulating interchange fees," Leigh Clapham said.

"In relation specifically to interchange, we are talking about a complex balance with numerous issues impacting the way the market sets the rate.

"Any artificial, academic manipulation of those market forces will always result in a skewed system.

"At the very core of MasterCard's argument to the RBA is the fact that merchants already hold all the cards when it comes to controlling payments at the point of sale.

"With their ability to surcharge for card usage, discount for cash or ask consumers for alternate payment options it's clear that retailers have all the options they need when it comes to controlling the way consumers pay.

"Giving them even more leverage skews the market in a way the RBA had not planned.”

Another example of where the regulations have had serious unintended consequences is in relation to competition between schemes.

"As we predicted five years ago, the RBA has unwittingly placed American Express in a unique position of competitive advantage by not including them within the regulatory framework. The RBA's failure to consider Amex part of the competitive landscape for payments clearly puts them at an advantage.

"And that’s an advantage they don’t have in countries where rates such as interchange are set according to cost models and basic supply and demand economics.

"We believe strongly in vibrant and strong competition, but that competition must be on a level playing field.”

In their submission MasterCard also highlighted evidence that shows the existence of payment cards, and credit cards in particular, provides tangible benefits to an economy. Benefits the RBA has so far failed to consider.

Two types of shopping behaviours are targeted by Merchants in their marketing and sales efforts: (a) impulse spending which is defined as spending decisions made on the spot and not part of a planned purchase; and (b) optimistic spending defined as spending above planned purchases.

A 2007 survey by MasterCard of shoppers' impulse and optimistic spending behaviours across five cities (Sydney, Hong Kong, Singapore, Manilla and Taipei) showed that both types of spending are positively correlated with credit card usage.

"In short, it demonstrated that credit card acceptance is critical to helping merchants increase sales and therefore adding value to merchants over and above simply being a convenient payment instrument."

Previous, independent research has also shown that the presence of payment tools such as cards build economies.

"The RBA has previously described itself as a 'reluctant regulator' in this area.

"If that is truly the case, then now is the moment for the RBA to support the industry’s calls to move toward a model of self-regulation which is in the broader interests of consumers and an effective, efficient market economy", concluded Clapham.

Statements in this press release which are not historical facts, including any statements about MasterCard's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbour provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made. Accordingly, except for the company's ongoing obligations under the U.S. federal securities laws, the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events. Actual results may differ materially from such forward-looking statements for a number of reasons, including those set forth in the company's filings with the Securities and Exchange Commission (SEC), including the company's Annual Report on Form 10-K for the year ended December 31, 2006 and Current Reports on Form 8-K that it has filed with the SEC during 2007, as well as reasons including difficulties, delays or the inability of the company to achieve its strategic initiatives. Factors other than those listed above could also cause the company's results to differ materially from expected results.

MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 16 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard Worldwide serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com.

Melissa Devine, 02 9818 0950, mdevine@ppr.com.au
Michael Pooley, 02 9818 9310, mpooley@ppr.com.au