Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I support the motion that this report by the Economics, Finance and Public Administration Committee be noted. I acknowledge the contribution of my committee colleagues and state that they were outstandingly facilitated and even improved by the staff of our secretariat. The report on the payment system is an important one. The payment system has been of some contention because of the recent reforms by the Reserve Bank of Australia. The payment system itself refers to arrangements that allow consumers and businesses to exchange payment for goods and services. Those instruments include cash, cheques and electronic funds transfers via both credit and debit cards. Non-cash payments obviously require arrangements and movements between accounts at different financial institutions, and of course a fee attaches to those transactions. The Reserve Bank of Australia has regulatory responsibility for that payment system in order to control risk for the consumer—for all parties, in fact—and to promote efficiency and competition. It also has the role of facilitating the system as banker to the Australian government.

A major issue for the Reserve Bank, and therefore the committee, was that the payment system must give clear price signals that enable informed choices by the consumer—and that is a laudable aim. It is important, too, that the free operation of the system is possible through the removal of restrictions that might limit entry into that payment system and therefore stifle competition. The reforms initiated by the Reserve Bank since 2000 will be reviewed again by the Reserve Bank in 2007. There has been some debate that that review undertaken should be not by the Reserve Bank but by some independent arbiter. However, the committee found that this process was most acceptable and considered that the Reserve Bank is the most appropriate body to do this. It is evident that the Reserve Bank does have the expertise. It also has the access to data that is essential for the proper scrutiny of this system. Personally, I doubt that any other body could act totally independently in such a role, given that the banks themselves and financial institutions are such a well-organised and powerful group of lobbyists when protecting their profits and interests. So I am pleased that the committee has recommended that the Reserve Bank do its own review.

The other problem that was looked at was that there was a situation for consumers that did not seem fair. The report validates for them that the RBA’s activities go to their best interests. The concerns of the RBA and the committee arose from the fact that credit card transactions were in fact cheaper than EFTPOS transactions. That does not make sense. EFTPOS has lower risk attached to it, because EFTPOS transactions are expenditure from cash that is already held in savings accounts; plus, when EFTPOS is used in stores to access cash or payments, the banks save quite a deal on administration and agency costs in terms of wages—unlike credit card transactions, where the risk is higher and the validity rests on one signature.

In Australia, that risk translates to $100 million per annum through credit card fraud. A cynic such as me would suspect that this unusual fee structure, which is certainly out of line with what one would expect, is in fact convenient for credit card issuers because it would make credit cards more attractive to customers and easier to use. There is no pin attached to them—simply a signature. That means of course it is very easy for a consumer to incur debt without any pain and without any difficulty, and, for most people, that debt then goes on to attract interest or fees. It is important to note that the total of these fees from interest on credit cards has actually overtaken the interest paid on mortgages in this country. Australians are carrying $36 billion of debt at the moment, on 13 million credit cards, and one would imagine that, with the pressure on household budgets from increasing petrol prices and interest rate increases, this debt can only go up. Of that credit card debt, $26 billion attracts interest—$26 billion of the $36 billion is not just paid back on time; it sits there as a debt with interest attached. Banks, of course, look forward to that revenue growth; and it certainly benefits them.

Submissions to the committee that opposed the Reserve Bank of Australia’s reforms to correct this imbalance and make EFTPOS cheaper suggested that the resultant savings to merchants from reducing those interchange fees were not being passed on to consumers. The committee found no evidence to substantiate that claim or refute it. However, clearly, when merchant fees are high, it is a given that those costs will be passed on to consumers via higher prices. The savings of $580 million that have been made since interchange fees have been reduced can only benefit both merchants and customers alike. Credit cards clearly hold advantages for those who use them as a payment instrument rather than as a credit instrument—those who pay them off every month without attracting any interest or fee. Those people are usually the wealthiest people in our communities, and they usually gain rewards such as frequent flier points for using their credit card in that way. They are virtually being paid to use their credit card by those unfortunate people who fall into the credit card debt trap and therefore continually pay interest. The burden of meeting those bonus obligations and reward points is passed on to those who can afford it least.

The major aspect and achievement of this report is the committee’s recommendation that all parties involved work together to improve the technology so that the payment system is protected—including the protection of the integrity of all those payments by implementing pin based authorisation for credit cards and not just requiring a signature. Visa recently said that this would be quite easy, that it is possible, that the technology is there and that most people are set up to do that straightaway. I hope banks and financial instisutions embrace that recommendation.

Implementing online functionality for EFTPOS cards is another part of our recommendations. Anyone with teenage children will know that you cannot book a concert or a ticket to a big show without a credit card. Many young people cannot really afford those credit cards and, unless they have a mum or dad who will do that transaction for them, they do not have the ability to use their savings accounts online. That is another debt trap for many people. So I hope the recommendation on that is embraced. There is also a recommendation on the adoption of chip technology.

I congratulate the Reserve Bank of Australia. The report clearly shows that it put the interests of consumers foremost in its role as the Australian banker to the Australian government and the Australian people. I look forward to the House of Representatives Standing Committee on Economics, Finance and Public Administration hearing on monetary policy with the Reserve Bank later this week, and I also take this opportunity to acknowledge the outstanding service of Governor Macfarlane. It has been a pleasure and a very instructive experience to work with him and to observe his input into the economy of this nation. Certainly, his dealings with the committee are always ones we look forward to and learn so much from. I also congratulate Deputy Governor Stevens on his upcoming appointment as Governor. The Australian people have been well served by both these gentlemen, who continue to demonstrate their independence and their devotion to upholding the interests of this nation.

Debate (on motion by Mrs Gash) adjourned.