The central bank has reviewed competition within the electronic fund transfer space for quite some time now, and is particularly interested in interchange fees, fees that are applied to credit and debit cards.

“We’d prefer to see fees being held down by competition than by direct regulation. We believe there’s been good progress in promoting competition over recent years, but it’s not yet clear whether that will be sufficient.” Mr. Edey told the Cards & Payments Australasia 2010 Conference today.

Mr. Edey says he could not comment or indicate to the sector, whether the central bank’s position would change in the immediate future.

Currently the industry is overseen by the Payments System Board, which is chaired by RBA governor Glenn Stevens.

“I know that many of you involved in the industry would like me to give some predictions or clues about what the board’s next decision on these matters might be. I’m not in a position to make that kind of prediction today.” Mr. Edey said.

In 2008 the RBA undertook a review, the results of which suggest that reforms of the system had delivered the benefits of lower cost to merchants and enhanced competition. The review also suggested however that there was a need for further improvement.

“The first possible approach would be to step back from interchange-fee regulation, if it could be reasonably satisfied that this was not going to result in the fees going back up again,” he said.

In August 2009, the central bank deferred its decision on additional reform, stating that it preferred allowing additional time to see whether competition would result in changes in the industry automatically.

Mr. Edey said that the market for charge and credit cards was extremely concentrated, and cited the fact that just two credit card schemes constitute more 80 per cent of all transactions.

“One of the consequences of the industry structure that I’ve just described is that competitive discipline on interchange fees has been weak,” he said.

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Major lenders have pushed debit cards that are linked to major card providers such as Visa and MasterCard according to banking research adviser Robert Morgan of East & Partners.

“Now the banks have got scheme debit cards, so that means you have arguably a wider acceptance. We are seeing a continuing trend to where people (think that) in terms of a credit card, a debit card is straight out of your bank instead of piling on the credit.” Mr. Morgan said.

35.8 per cent of all merchant transaction in 2009 were paid using debit cards, up from 24.6 per cent in 2008 East & Partners says.

Credit cards were the second most popular payment method, followed by cash, cheques and direct credit.

The flexibility provided by debit cards alongside concerns over rising personal debt lead to their popularity.

Scheme debit cards are similar in nature to Electronic Fund Transfer Point of Sale (EFTPOS) cards, and allow consumers the ability to pay online or using a telephone in much the same way as a credit card.

“People are changing perhaps their view of debit cards as well. Plastic is not confined to credit cards. With the global financial crisis, of course, people have tightened their belts and looked at credit spending habits.” Mr. Morgan said.

Harry Senlitonga of research firm Canstar Cannex says that debit cards offered consumers a way to control their personal finances.

“The good thing about debit cards is that they are using their money and it excludes the trap of getting into debt,” Mr. Senlitonga said.

Mr. Senlitonga added that the major Australian lenders have become increasingly aggressive in their debit card offerings, which was another factor contributing to their growth.

“We have seen now the four major banks have debit cards as part of their transaction offering. It was not introduced until around three years ago. That is a reason why credit card growth has been less than debit card, and people are spending more carefully.” he said.

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