board identified the rise in card - not - present fraud as a priority for the industry. in august this year, the board was pleased to welcome auspaynet ’ s publication of a draft industry framework to mitigate card - not - present fraud, and supports continued collaboration on this issue. a separate but not unrelated priority for the industry is to progress work on digital identity. this is another area where barriers to effective coordination can arise. i am pleased that auspaynet is undertaking work here, under the auspices of the australian payments council. digital identity is likely to become increasingly important as more and more activity takes place online. the rba is highly supportive of industry collaboration on this issue and views it as important that substantive progress is made. more broadly, individuals, businesses, governments and financial institutions all need to be aware of cyber risks. in the rba ’ s most recent financial stability review we noted the increasing sophistication of cyber attacks and that regulatory authorities have increased their focus on cyber issues. 9 / 14 bis central bankers'speeches reliability a third factor is the confidence that people have that they will be able to use the electronic system when they need to make their payments. as i noted earlier, people will still want to hold and use banknotes if they can ’ t be sure that the electronic system will be available when they need it. in our consumer payments survey in 2016, we asked people about why they held cash in places outside of their wallet. the most common response, from nearly half of respondents, was that it was for emergency transaction needs. over recent times, there have been a number of serious operational incidents that have interrupted the payments system. on some occasions these have been caused by problems with the telecommunications companies and at other times by problems at the banks. an operational incident at the rba in august as a result of problems with a routine fire test also saw a number of rba core systems unavailable for some hours, including the fast settlement service supporting the npp. we all need to do better here. as we rely less on cash, outages affecting retail transactions can have a significant impact on businesses and individuals. so continued effort needs to be made by all participants in the payments system to reduce operational problems. if this does not happen, then it is possible that the payments system board could consider setting some standards. 3. increased focus on cost and competition my third broad point is about the cost of electronic payments and the importance of competition. as we

move to a predominantly electronic world, there will be more focus on the cost of operating the electronic payments systems and how those costs are allocated between those making and receiving payments. looking forward, i expect that over time the cost of electronic payments will decline further, due to both advances in technology and economies of scale. even so, there are significant costs to operate the electronic systems, including costs for front - and back - end systems to maintain accounts, and to deliver functionality and convenience to users, as well as costs in preventing fraud and ensuring resilience. how these costs are managed and who pays for them will have a significant bearing on the efficiency of the overall system. in terms of card payments, merchants in australia currently pay less than merchants in many other countries. the comparison with the united states is particularly stark ( graph 7 ). for credit cards, australian merchants, on average, pay 0. 8 per cent of the transaction value for mastercard / visa transactions. in the united states the figure is much higher at around 2. 2 per cent. there are also differences in the cost of debit cards and american express cards between the two countries. 10 / 14 bis central bankers'speeches the main reason for the lower merchant costs in australia is our lower interchange fees. these fees were reduced in australia as a result of regulation by the reserve bank commencing in 2003. the rba ’ s reforms reduced average interchange fees in the mastercard and visa systems by around 45 basis points. this has been reflected in merchant service fees ; indeed, these merchant fees have fallen by somewhat more than the cuts to interchange, likely reflecting an increased focus on card acceptance costs by merchants ( graph 8 ). in addition, as a result of competitive pressure, including from the removal of no - surcharge rules, fees on american express and diners club have also fallen over time. 11 / 14 bis central bankers'speeches notwithstanding the reduction in interchange fees, these fees still represent, on average, around 60 per cent of the total merchant service fee on credit cards. so they remain an important part of the total cost to merchants. conversely, these fees mean that the cardholder ’ s bank gets paid each time the card is used. this has meant that the cost to consumers of using these cards is often low ; in some cases, cardholders are actually subsidised to use their card, through reward points and / or interest - free credit. the subsidy is provided by the cardholder ’ s bank