CRA International Report on Regulatory Intervention in the Payment Industry by the Reserve Bank of Australia

    In an exhaustive report submitted to the Reserve Bank of Australia on April 28, 2008, a group of economists in the London office of CRA International has concluded that the RBA's regulatory intervention in the payment cards industry in Australia beginning in 2003 has harmed consumers and should be withdrawn. The key findings of this report follow:

    Mandated reductions in interchange fees have clearly harmed consumers in Australia by raising cardholder fees and reducing card benefits
    On average, the annual fees for standard four-party credit cards increased by 22% between 2001 and 2004, while annual fees for rewards cards by 47%-77%. As a result, cardholders in Australia are now paying approximately AU$480 million more in additional fees for credit cards each year. Meanwhile, the value of rewards points for four-party cards has declined by approximately 23%.

    There is no evidence that these "undeniable losses to consumers" have been offset by reductions in retail prices and/or improved quality of service
    As expected, the reductions in interchange fees have led to a significant reduction in merchant service charges, "benefiting merchants to the extent of approximately AU$850 million per year. "Merchants however have not presented any empirical evidence documenting the extent to which reductions in merchant service charges have been passed through to consumers, and neither has the RBA or anyone else.

    Merchants have imposed discriminatory surcharges on payment card transactions
    Merchants have imposed surcharges to a greater extent than is justified by their costs. On average, surcharges on users of four-party cards have exceeded average merchant service charges.

    The RBA has reduced incentives to innovate and may have harmed competition
    The reduction in the profitability of issuing has reduced incentives for new entrants to enter the industry, and has made it more difficult for smaller issuers to compete. It has also reduced the incentive of issuers to invest in new types of four-party cards and in other payment system innovations.

    The RBA's case for intervening was and remains flawed. These findings should cause the RBA to reconsider its intervention, and give pause to regulators in other countries
    One of the main effects of the RBA's interventions has been a redistribution of wealth in favor of merchants. The cost calculations on which the RBA relies are deeply flawed. The findings of this study provide no evidence that the payment system in Australia is now operating more efficiently or that consumers have derived any net benefits from the intervention.

    The reports are accessible from the European Competition Practice part of the CRA website which can be found at:

    The direct links to the cover letter and report are as follows:

    CRA International Letter to the Reserve Bank of Australia: CRA International Study of the RBA Intervention in the Payment Card Industry:

    1 Robert Stillman, William Bishop, Kyla Malcolm, and Nicole Hildebrandt, "Regulatory intervention in the payment card industry by the Reserve Bank of Australia: Analysis of the Evidence" (28 April 2008), available at