Document ID: chunk:federal_register_of_legislation:F2019N00027:body:0:p11
Version: federal_register_of_legislation:F2019N00027
Segment Type: other
Provision Reference: 
Character Range: 26427–29312

or affinity partner.[22]

Proposal 6:
Clarify that the types of entity that an issuer can receive an Issuer Receipt from include associated entities of scheme administrators, drawing on the definition of Associated Entity in the Corporations Act 2001.

Definition of 'Incentive Test'
Under the current standards, for a benefit to be classified as an Issuer Receipt it must meet the test that it has the purpose or likely effect of promoting or incentivising the issuance or use of cards of the scheme, or providing or funding incentives for holders of card of the scheme to use those cards. The Bank received enquiries from stakeholders about whether this would cover benefits that are intended to incentivise an issuer to enter into a contract to issue a scheme's cards. In the Bank's view, this aspect of incentivising card issuance was implicit in the wording of the standards. Nonetheless, the enquiries suggest that some further clarification would be useful. Accordingly, the Bank proposes to explicitly articulate in the standards that benefits that incentivise the entry into a contract relating to the issuance of cards of the scheme meet the incentive test to be included as an Issuer Receipt. To streamline the structure of each standard, the Bank proposes adding 'Incentive Test' as a defined term (in Clause 2), and referring to this in the definition of Issuer Receipts and elsewhere.

Exclusion of 'pass-through' arrangements
In informal consultation it was also suggested that the existing incentive test may inadvertently result in 'pass-through payments' being captured in Issuer Receipts. An example of one such pass-through payment that may be captured is where an issuer receives 'merchant-funded' cash rewards via a loyalty services provider to fully disburse to cardholders in its capacity as the cardholders' account provider.
Under the proposed narrowing of the set of entities that can provide Issuer Receipts (see subsection Entities providing Issuer Receipts), there is less scope for genuine pass-through payments of this type to be captured, though where a loyalty services provider is a scheme administrator or an associated entity of a scheme, the merchant-funded pass-through payment described above would still fall in the definition of Issuer Receipts if it meets the Incentive Test. On balance, the Bank decided against introducing an explicit exclusion for this type of payment, partly because an exclusion might create scope for circumvention of the standards. The Bank also notes that there are likely to be reasonable alternative methods for facilitating merchant-funded rewards, such as the provision of cash-back at the point of sale and other forms of rewards made directly to the customer (either by the merchant or by a loyalty services provider).
In considering pass-through payments, the Bank notes that the net compensation provision