Payment systems farewell

The Reserve Bank has released its initial report on reviewing the credit and debit card payment systems in Australia. It canvasses several options from doing nothing to a stricter regime to a hands-off or light-handed approach. The latter involves less regulation in return for more transparency in interchange fee setting. It looks like it may adopt the light-handed approach. This could be the right way to go, but it is hard to tell.

I made a submission to the RBA Review (click here) and it highlights something very disappointing in the RBA’s initial report: no reliance on economic evidence. The RBA does not consider or refer to any studies of the impact of its reforms using the usual tools in economics — the same tools it uses for monetary policy. My submission appended such an analysis and demonstrated very convincingly, that interchange fee regulation had likely had no effect despite the dramatic nature of such reforms. Indeed, if you want to impact on credit card use, change interest rates.

At the 2020 Summit, there was a universal call for more evidence-based economic policy. In this instance, the RBA — otherwise the high standard of such processes — has continued to shy away from the evidence in favour of informal theories and industry submissions. For us academics, this is very discouraging. Given the reaction thusfar, I don’t imagine I will be making any more submissions on these matters and, consequently, one of the few independent voices on payment systems will be exiting the fold.

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