cards rule to allow merchants to make separate decisions for credit and debit cards ; a cap on visa debit interchange ( which was also voluntarily adopted by mastercard ) ; a reduction in interchange fees for eftpos ; agreement by the three - party schemes to remove no - steering rules ; access regimes for a number of card - payment systems ; and increased transparency of interchange fees and merchant service fees. taken together, this expanded package of reforms was in place by the beginning of 2007. these developments have been closely watched both by regulators and market participants around the world, because australia was the first major country to begin reforms in this area. subsequently, a number of other countries have taken steps of a similar nature, and some are considering the case to do so. the sequence of reforms i ’ ve just outlined obviously has a lot of detailed elements to it. but, at a strategic level, it can be thought of as addressing the concerns about efficiency in two ways. in the first place, the board took the view that, left to itself, the market was delivering interchange fees that were too high. hence they took direct action to regulate them lower. as a result, average credit card interchange fees have fallen from around 95 basis points before the reforms to around 50 basis points now. merchant service fees associated with the large credit card schemes have correspondingly fallen ( in fact by more than the reduction in interchange fees ), and this in turn has put downward pressure on fees for the three - party schemes. interchange fees for scheme debit and eftpos have also been reduced by direct regulation. secondly, the various other elements of the reform package can be thought of as working to improve the alignment between price signals and decision - making power – the issue that i spoke about earlier. one very important aspect of that is the disallowance of no - surcharge rules. it ’ s important to be clear on the rationale for that. we ’ re not saying that surcharging is an end in itself, or that it ’ s going to be right for all circumstances. but rules against surcharging represent a restriction on the flow of price signals to the main decision - maker, and so the option to surcharge needs to be there. and where surcharging reflects the costs incurred in the provision of the payment service, it should contribute to efficient outcomes. another way of improving this alignment has been to remove restrictions on the ability of merchants to influence the

each scheme, there are multiple cards with differing interchange fees, and market share tends to shift towards those cards with the higher fees. it ’ s an illustration of the the acquirer is the bank that services the merchant. the issuer is the bank that issued the credit card to the cardholder. in a typical credit card transaction, the acquiring bank pays an interchange fee to the issuer. principle that, in these rather unique conditions, competition for market share tends to push the average price up rather than down. what i ’ ve just set out is obviously not a complete description of the cards market. but i think it captures those features that are particularly distinctive, and which raise at least the potential for concerns about efficiency and the adequacy of competition. with that background, i ’ ll turn now to the rba ’ s involvement in card payments regulation. the origin of that involvement was the decision by the federal government, in 1997, to implement the wallis recommendations by giving regulatory oversight of the australian payments system to the rba. the act set up a payments system board of the reserve bank, with responsibility for payments - system efficiency and stability. among other things, the act gives the board the power to designate a payments system and, where a system has been designated, to set regulatory standards with respect to such things as fees and operating rules. the board ’ s first major study in this area was conducted jointly with the accc, and was released in october 2000. that study raised a number of concerns about market practices in the industry, particularly the setting of scheme interchange fees and a range of other matters related to competition and the efficiency of price signals. since industry attempts to address accc concerns about interchange fees had failed, and given that the payments system board had a clear mandate in this area, the board then moved into a process of reform, starting with the credit card schemes. after a period of consultation, the first package of credit card reforms was announced in august 2002. that package had three main elements, which were : a cost - based standard on interchange fees ; disallowance of no - surcharge rules ; and rules to expand access to the network. but the bank was always of the view that reform of the payments system needed to be holistic. so over the next few years, the reform process added a number of other elements, which covered both credit and debit cards. some of the key ones were : a restriction on the honour - all -