Payment Systems (Regulation) Act 1998 - The Setting of Interchange Fees in the Visa Debit Payment System, the ‘Honour All Cards’ Rule in the Visa Debit and Visa Credit Card Systems and the ‘No Surcharge’ Rule in the Visa Debit System

Interchange fee: A wholesale fee payable between an issuer (the card-issuing institution) and an acquirer (the institution servicing the merchant), directly or indirectly, for each Visa Debit card transaction. It is a transfer payment that typically flows from the acquirer to the issuer. The Standard regulates the weighted average of all such fees in the system, not individual fee levels.

Weighted average: Defined in paragraph 12 as the total interchange revenue that would have been payable had the fees implemented on the relevant date been applicable in the previous financial year, divided by the number of transactions in that year. This means the weighted average is a historical-looking metric based on the prior year’s transaction volume and the current fee schedule. If a fee is introduced, varied or removed mid-cycle, the weighted average must be recalculated using the prior year’s transaction data and the new fee structure.

Benchmark: A dollar figure in cents per transaction calculated by the RBA using data from designated credit card schemes. The methodology in paragraph 14 uses credit card processing and authorisation costs (paragraphs 13(i) and 13(iii) of the credit card Standard) divided by total credit card transaction value, weighted by each scheme’s share, then multiplied by the average value of all scheme debit transactions. This links the Visa Debit ceiling to credit card cost efficiencies, not to Visa Debit’s own cost structure.

Reference year: The financial year (ending 30 June) before the relevant year (the financial year in which the benchmark must be calculated). So for a benchmark calculated in 2009/10, the reference year is 2008/09.

Relevant year: The financial year in which the benchmark is calculated. The initial benchmark was for 2006/07.

Visa Debit card: A card that accesses a deposit account at an authorised deposit-taking institution, issued under Visa scheme rules. It does not include consumer credit functions.

Visa Debit card transaction: A purchase transaction in Australia between a cardholder and a merchant, net of credits, reversals and chargebacks.

Scheme debit transactions: Both MasterCard and Visa debit transactions are used in the benchmark calculation, meaning the ceiling is sensitive to the overall debit market, not just Visa’s own transaction values.

Cost base: Processing and authorisation costs from each designated credit card scheme, divided by total credit card transaction value. This is a relative cost measure, not an absolute dollar cost.

The Standard directly imposes obligations on three categories of parties. First, all participants in the Visa Debit system (issuers and acquirers) must do all things necessary to ensure compliance. This includes banks, credit unions, building societies, and other authorised deposit-taking institutions that issue Visa Debit cards or provide merchant acquiring services for Visa Debit transactions. They must ensure that the weighted average of the interchange fees they implement does not exceed the RBA’s published benchmark at each specified date. Second, the administrator of the Visa Debit system (Visa Worldwide Pte. Limited or its Australian entity) must provide transaction data to the RBA, publish interchange fees on its website, and certify compliance annually. Third, the Reserve Bank of Australia itself is affected as it must calculate and publish the benchmark, waive or suspend recalculation if it chooses, and enforce the Standard under the Payment Systems (Regulation) Act 1998. Beyond these direct participants, the Standard has significant indirect effects. Merchants that accept Visa Debit cards are affected because the interchange fee cap reduces one component of the merchant service fee acquirers charge them. A lower weighted average interchange fee should translate into lower merchant discount rates, though acquirers may adjust margins or impose other charges. Cardholders are indirectly affected: lower interchange revenue to issuers may reduce the funding for account features, rewards programs, or other cardholder benefits, or lead to higher annual fees. Competing payment systems such as eftpos and MasterCard debit are affected because the cap alters the relative cost of acceptance; merchants may steer customers toward cheaper debit options. New entrants into the issuing or acquiring space face the same compliance obligations and may find the benchmark constrains their ability to use interchange fees to differentiate. The Standard also constrains Visa itself from altering its default interchange schedules to pass through higher costs. The RBA’s designation power under the parent Act gives it leverage beyond this Standard; failure to comply could lead to further regulatory action.

The central duty is in paragraph 5: each participant must do all things necessary on its part to ensure compliance with the Standard. This is a broad obligation that covers issuers and acquirers. When a participant introduces, varies or removes an interchange fee, it must ensure that the resulting weighted average does not exceed the benchmark. The duty is ongoing and subject to interpretation under paragraph 7, which requires the Standard to be read in accordance with its objective (efficiency and competition) and by looking beyond form to substance. This means structuring fees to formally comply while achieving an economically higher weighted average could be treated as non-compliance.

The administrator of the Visa Debit system must provide transaction data to the RBA by paragraph 9: the number and value of Visa Debit card transactions in Australia in the reference year, if available; otherwise, data on transactions processed by the Visa system. This is a mandatory information supply duty.

The administrator must publish interchange fees applying to Visa Debit transactions on its website (paragraph 19) and certify in writing to the RBA on or before 30 November each year that fees complied with the Standard over the prior twelve months ending 31 October (paragraph 20). The certification is an annual compliance attestation.

The RBA has the right to calculate the benchmark using data from credit card schemes (paragraph 13) and must publish it by 30 September of the relevant year (paragraph 15). The RBA may also waive or suspend the requirement to re-calculate the benchmark at any time by notification on its website (paragraph 18). This gives the RBA discretion to freeze the benchmark if conditions change, without legislative amendment.

No participant has a right to exceed the benchmark. The Standard does not grant any individual right of action to merchants or consumers, but non-compliance could trigger enforcement under the parent Act. The interpretation rule “looking beyond form to substance” effectively grants the RBA and any tribunal or court the right to disregard formal compliance if the economic effect is avoidance.

The Standard itself does not prescribe specific penalties for non-compliance. It is made under section 18 of the Payment Systems (Regulation) Act 1998, which contains the enforcement mechanisms. Section 18 empowers the RBA to set standards for designated payment systems. Contravention of a standard is not a criminal offence under the PSRA itself, but the RBA can apply to the Federal Court for an injunction to restrain a person from engaging in conduct that constitutes a contravention (under section 21 of the PSRA). The Court may also order a person to take action to remedy the contravention. The RBA can also issue a direction under section 19 of the PSRA requiring a participant to comply with a standard. Failure to comply with a direction can attract further consequences, including the RBA being able to vary or revoke a participant’s access to the designated system. The PSRA also allows the RBA to impose penalties on participants that contravene a standard, but such penalties must be prescribed by regulation; as of the compilation date, no specific penalty amounts are set out in this Standard. The practical enforcement lever is the RBA’s ability to designate a payment system, and by extension to threaten revocation or variation of a designation if a participant repeatedly fails to comply. The annual certification requirement (paragraph 20) provides a formal trigger: if the administrator certifies falsely, it may face legal consequences under general law for misleading or deceptive conduct, or under the PSRA if the RBA relies on it. The RBA also publishes data and may name non-compliant parties, creating reputational risk for participants. Because the Standard requires the weighted average to be checked at specified dates, compliance is calculable and auditable. A participant that sets fees above the benchmark on the trigger dates is in breach, regardless of subsequent adjustments. The RBA’s power to look beyond form to substance allows it to challenge fee structures that are technically below the benchmark but produce the same economic effect as above-benchmark fees.

This Standard was made under the Payment Systems (Regulation) Act 1998 (PSRA), which gives the RBA power to designate payment systems and set standards for those systems. The PSRA is the primary enabling legislation, and its definitions apply to this Standard (paragraph 3 of the Application section). The standard also cross-references another RBA standard: the Standard The Setting of Wholesale (‘Interchange’) Fees in the Designated Credit Card Schemes. The methodology for the benchmark (paragraph 14) imports the cost definitions from paragraphs 13(i) and 13(iii) of that credit card standard. This means the Visa Debit benchmark is derived from credit card processing and authorisation costs, not from any debit-specific cost study. If the credit card standard is amended, the benchmark methodology may shift automatically. The RBA also has a separate Standard for MasterCard debit interchange fees (the Standard “The Setting of Interchange Fees in the MasterCard Debit Payment System”). That standard likely mirrors this one, but with its own system-specific data. The two debit standards interact because the benchmark uses the average value of all scheme debit transactions (both MasterCard and Visa) from data provided under paragraph 9. This creates a cross-system dependency: if MasterCard debit transaction values change, it affects the Visa Debit benchmark. Competition law under the Competition and Consumer Act 2010 may also apply. The PSRA was designed to allow the RBA to regulate payment systems that might otherwise raise concerns under the competition law. The standards themselves are not subject to the competition law because they are made under statutory authority, but participants’ conduct that goes beyond compliance may still be subject to ACCC enforcement. The Australian Securities and Investments Commission Act 2001 may apply to conduct by financial institutions in relation to disclosure of fees to customers. The Privacy Act 1988 may affect the handling of transaction data provided to the RBA. The Reserve Bank Act 1959 establishes the RBA’s general powers, but the PSRA is the specific source for this Standard.

The compilation provided is number 3, prepared on 1 September 2016, taking into account amendments up to the revocation of the Standard the ‘Honour All Cards’ Rule in the Visa Debit and Visa Credit Card Systems and the ‘No Surcharge’ Rule in the Visa Debit System, registered on 1 September 2016. This suggests the Standard originally included rules about honour-all-cards and no-surcharge that were later revoked. The revocation did not affect the interchange fee cap itself. The Standard came into force on the date it was published in the Gazette (paragraph 8), which would have been some time before the first benchmark date of 1 November 2006. The initial benchmark was for the financial year 2006/07 (paragraph 16). The first recalculation was required in 2009/10, triennially thereafter. The RBA has used its power under paragraph 18 to waive or suspend recalculation at various points. In practice, the RBA announced in 2012 that it would not recalculate the benchmark for the 2012/13 period, and again in 2015 and 2016 it extended the existing benchmark. The compilation notes do not specify all waivers, but the power has been exercised. The compilation number 3 indicates two prior sets of amendments. The original Standard likely contained additional obligations that were later removed, such as the honour-all-cards rule (requiring merchants to accept all Visa cards if they accept any) and the no-surcharge rule (prohibiting surcharging on Visa Debit). Their revocation simplified the interchange fee regime. The Standard itself has not been substantially amended on interchange methodology since its inception; the benchmark formula remains unchanged.

The Standard as provided does not reference any litigation. However, the broader regulatory framework for interchange fees has been subject to legal challenges. Most notably, in 2003 the Australian Bankers’ Association and others challenged the RBA’s designation of the Visa credit card system and the setting of the credit card interchange standard in the Federal Court. The case, Australian Bankers’ Association v Reserve Bank of Australia [2003] FCA 1422, upheld the RBA’s power to regulate interchange fees. That judgment concerned the credit card standard, but its reasoning applies to the Visa Debit standard because both were made under the same legislative power. A subsequent challenge to the Visa Debit standard specifically has not been recorded in the compilation notes. The revocation of the honour-all-cards and no-surcharge rules in 2016 may have been influenced by litigation or merchant complaints about surcharging, but the Standard itself does not mention this. No further litigation is noted. The RBA’s discretion to waive benchmark recalculation has not been judicially reviewed to date. Participants that are aggrieved by a benchmark calculation could theoretically seek judicial review under the Administrative Decisions (Judicial Review) Act 1977, but the benchmark is a calculation based on data from third parties, and the methodology is tightly prescribed, leaving limited grounds. The interpretation provision requiring the Standard to be read “by looking beyond form to substance” could give rise to disputes over whether a fee structure that formally complies is in substance above the benchmark. Such a dispute might be resolved administratively by the RBA or ultimately in the Federal Court, but as of the compilation date no reported case on that point exists.

The most significant gotcha is that the benchmark is calculated using credit card processing and authorisation costs, not debit-specific costs. This means the Visa Debit fee ceiling is linked to cost efficiencies in a different product. If credit card costs rise (for example due to fraud or compliance mandates), the Visa Debit benchmark increases even if Visa Debit’s own costs remain stable. Conversely, if credit card costs fall, the benchmark falls, potentially squeezing issuer revenue from debit transactions that have a different cost structure. The RBA can waive or suspend recalculation, but this is discretionary with no criteria in the Standard. Participants cannot rely on a triennial recalculation occurring; the benchmark may be frozen for many years, creating a gradually tighter cap if nominal transaction values rise.

The weighted average must be checked every time a fee is introduced, varied or removed. This triggers a compliance calculation even outside the triennial dates. If a participant changes a single fee, it must recalculate the weighted average using the prior year’s transaction volumes and the new fee schedule. The prior year’s volumes may not reflect current transaction patterns, so a fee change that appears compliant on paper might become non-compliant if volumes shifted. There is no grandfathering or grace period for fee changes.

Interpretation rule 7(b) “by looking beyond form to substance” gives the RBA and any reviewing body a wide scope to find that a fee structure that formally yields a weighted average below the benchmark nonetheless breaches the standard because its economic substance is to impose a higher effective interchange. This creates uncertainty for participants designing fee schedules with multiple tiers, rebates, or conditional payments.

The administrator must certify compliance by 30 November each year for the prior twelve months ending 31 October. This means the compliance period is a rolling twelve months that does not align with financial years or benchmark calculation dates. A participant that was compliant at the triennial date (1 November) but later changed fees and became non-compliant before the next 31 October would cause the administrator to certify falsely unless the change was reversed.

The Standard does not exempt small participants or new entrants. Every issuer and acquirer in the system must comply. The data provision obligation falls only on the administrator, but participants are expected to cooperate. A participant that operates solely through a third-party processor may not have direct control over fee changes and could be inadvertently non-compliant.

The benchmark uses the average value of all scheme debit transactions (both MasterCard and Visa). If MasterCard debit transaction values are not provided or are calculated differently, the benchmark may be distorted. The RBA relies on data from schemes, which may change their reporting.

Finally, the Standard contains no sunset clause. It continues indefinitely unless revoked or varied by the RBA. The revocation of the honour-all-cards and no-surcharge rules suggests the RBA is willing to amend, but the interchange cap itself has remained structurally unchanged since 2006.

Participants must first understand their interchange fee schedule and calculate the current weighted average using the formula in paragraph 12: total interchange revenue that would have been payable had the implemented fees been applicable in the previous financial year, divided by the number of transactions in that year. This calculation must be performed as at each trigger date: 1 November of each third year and any date a fee is introduced, varied or removed. To ensure compliance, participants should maintain a rolling record of their fee schedules and transaction volumes.

The benchmark is published by the RBA on its website by 30 September of the relevant year. Participants should monitor the RBA’s website for the current benchmark and any announcements of waiver or suspension of recalculation. The benchmark, once published, applies for the triennial period unless superseded.

To avoid breach on a fee change, participants should run the weighted-average calculation before implementing any change. If the projected weighted average exceeds the benchmark, the change must be adjusted or abandoned. Participants may consider reducing other fees within the schedule to offset an increase in one fee, keeping the weighted average in check.

The administrator (Visa) has its own obligations, but participants must ensure they provide accurate and timely data to the administrator if requested, and must cooperate with the administrator’s ability to certify. Participants should also ensure their contracts with acquirers or issuers reflect the need to comply with the Standard.

Annual certification by the administrator is a system-level obligation. Those participants that have direct relationships with the administrator should ensure they report their fee schedules accurately so the administrator can certify. False certification risks regulatory action.

For participants that operate across multiple card schemes, the weighted average must be calculated only for Visa Debit, not across all debit products. Mixing interchange from other cards could mask non-compliance.

If participants believe the benchmark is inappropriately calculated or that a waiver should be granted, they may make representations to the RBA. The RBA has discretion under paragraph 18 to waive or suspend recalculation, but this is not a participant right. There is no formal appeal mechanism within the Standard, so participants must rely on broader administrative law remedies.

Practical steps: maintain a spreadsheet that tracks each interchange fee tier, the revenue it would generate if applied to prior year volumes, and the resulting weighted average. Automate a check whenever a change is proposed. Engage compliance officers to review the RBA’s published benchmark each year before 30 November to ensure the certification can be given. Keep records of all fee changes and calculations for at least the three-year cycle to demonstrate compliance if audited.