schemes be allowed to place limits on merchant surcharging for card payments, and if so, in what form? that question was first examined by the payments system board during its initial round of credit card reforms, which were announced in 2002. the board ’ s decision, as you know, was to require the removal of rules against surcharging. that was part of a wider reform package that also included a standard for interchange fees. a newcomer to this debate might ask the question, why did we take action against no - surcharge rules when the effect would be to make some cardholders pay more for their transactions? it ’ s worth briefly re - capping the answer to that. one of the distinctive features of card payment systems, historically, has been a lack of alignment between pricing and decision - making power. in a typical credit card transaction, the person who makes the choice of payment instrument is usually the cardholder, but the bis central bankers ’ speeches transaction fee is incurred by the merchant. in simple terms, the cardholder makes the decision but the merchant pays the fee. the interchange arrangements that underpin this fee structure have tended to be configured in a way that rewards issuance and usage of cards while adding to merchant costs. we have observed in this structure that competition tends to push fees up rather than down because, the higher the fee, the greater the capacity to reward cardholders for using a given card. scheme rules prohibiting surcharging have had the effect of reinforcing that pattern, because they prevent price signals from flowing to the person who chooses the payment instrument. this was the basic logic for the decision to prevent schemes from making rules against surcharging. a decade later, what can we say about the effects of that decision? i can best answer that by describing the results of the reform package as a whole, because the different elements of it were closely inter - related. the clearest impact has been a reduction in card payment costs. in the case of the four - party credit card schemes, the average merchant service fee has fallen by about 60 basis points. although the three - party schemes are not regulated in this way, they have voluntarily accepted the surcharging standard and have been subject to some of the same competitive pressures. as a result, merchant service fees for the three - party schemes have fallen by a similar amount. since the adoption of the reforms, the prevalence of surcharging has significantly increased. according to

one, but in some ways it is related to the previous point, because the international framework for messaging standards provides for transmission of a significant amount of additional data. i think there is widespread acknowledgement within the payments industry that international standards should be adopted wherever possible. timeliness of payments. as communications technology advances, there is little doubt that people are expecting greater immediacy in many areas, and payments are no exception. it is currently not possible for me to make a payment to someone who banks with another bank and for them to be able to use those funds within a short space of time. in some circumstances this lack of capacity can be a significant problem – for instance when someone is waiting on an emergency government payment. this seems like an area we could improve on and it is increasingly becoming a focus overseas. likewise, the fact that payments cannot occur between banks out of normal business hours seems out of line with the ‘ always on ’ world we now live in. addressing payments. cheques are always a good reminder of the things that are missing in our electronic payments. i can pay someone with a cheque when all i know about them is their name. but if i want to make an electronic payment, i bis central bankers ’ speeches typically need to know a 6 - digit bsb number and a 9 - digit account number, things the receiver probably cannot readily provide. people are finding partial workarounds that make use of mobile phone numbers or email addresses, but we are yet to have a truly seamless system. all of these are areas where any progress will have to be made co - operatively, because they are characteristics of the network, not just of the individual players. but that also means that a decision to move ahead in any of these areas needs to take into account the costs and benefits across the system as a whole, both for service providers and end - users. that raises the broader question of whether there needs to be a change in governance arrangements in the industry, so as to make them more conducive to innovation in general. there are a number of reasons why co - operative innovation can be hard to achieve. industry participants have differing commercial interests, and even factors like the timing of their investment cycles can make coordinated actions difficult. a change in messaging standards or timeliness of payments might benefit the public, yet remain hard to achieve because there is no proprietary benefit to the individual service providers. the challenge is to find a way of determining when innovations of that nature are