The company which we are going to discuss in this report is Mastercard. Mastercard Incorporated is a multinational financial services corporation which is based out of America and has its headquarter in Purchase, New York, USA. This is also there international global headquarter. The company is in the business of performing the processing of payments among different merchant banks along with issuing bank cards as well as credit unions of the purchasers. These purchasers need to use debit, credit, or prepaid cards from Mastercard to make their purchases. The company headquarters designated for performing global operations is in O’Fallon, Missouri, the USA which is a suburb of St. Louis, Missouri. The company came with an IPO worldwide in the year 2006. Mastercard has close to 13400 employees worldwide as of December 2017. In Australia, the company is working with close to 800 staff members, half of them are software engineers. Mastercard, Australia has its headquarter in Sydney (Bagnall, 2012).
In the early 2000s, there were lots of reforms that were introduced by the Australian banks. These reforms were related to regulations for limited elements of credit as well a debit card system with an objective to make the payment system of Australia more efficient and also to promote the competition in terms of payment services. There are some credit card regulations adopted by Australia which impacts Mastercard in one or the other way. This includes fee cap for credit card interchange to an average of 0.5% of the total transaction amount. There is a cap on individual interchange rate which is 0.8%. They have also removed any kind of restrictions which a way for merchants is to pass on the cost for card acceptance to credit cardholders by means of surcharge. Also, there is restriction removal in case of merchants who accepts the debit card related to a particular scheme if they accept credit card for that scheme and other way round. It requires some written undertakings by Mastercard and Visa. It lowers down barriers for entering through regimes which assists in increasing the payment system participation. In Australia, regulations have improved the level of transparency and promoted efficient price signals as well. This helped in improving the payment choices and developed a more efficient payment system in general. Along with this, the competition level has also improved with the help of lowered restrictions in the case of merchants and liberalized access to systems. In the year 2016, a review of card payments had been performed by the bank in order to review the regulatory framework. In order to do so, the bank released an issue paper in the year 2015 which involved some recent developments which took place in payment system which were concerning given the fact that Bank had a mandate to promote competition in payment system and make it more efficient. In the year 2015, there was another release by the bank which is called a consultation document which outlined some proposed changes which happened in the standards of card payment system. The conclusions based on the review of card payment regulations came out in the year 2016 which was followed by a consultation process (Emery, 2014).
In the year 2017, new interchange benchmarks came into existence explaining a cap on individual interchange rate of 0.8%. If we talk about the average benchmark for transactions through credit cards, then it was maintained at 0.5%. There was a quarterly review of compliance with the benchmark. There were lots of issues which were addressed such as competitive neutrality, interchange payments to issuers in the American Express card system which have the same regulations as applied to card systems of Mastercard and Visa as well. All the more extensively, to forestall circumvention of the trade gauges, there are constraints on any plan installments to backers that are not caught inside the exchange benchmarks. The examination of Mastercard and Visa credit card systems in Australia took place in late 90s and early 20s by the regulators. At that point in time, the users who had clearance from the regulators on the basis of prudency and organization under local banking legislation were considered to be eligible for participation. The authorized deposit making institutions (ADI) which were governed by the Australian Prudential Regulation Authority (APRA) were given the right to authorize issuers and acquirers of card. For eligibility purpose, card acquirer needs to be an issuer as well and there were high penalties for net acquirers. This means that the businesses that they wished to focus on might be a disadvantage to card issuers and acquirers.
As per the regulators, it was required for the card issuers to have a very sound financial standing for the purpose of ensuring the fact that issuers were capable enough to fulfill their obligations and would not impact the card system badly. They also recognized that schemes can have an effective screening method in the form of ADI requirements. Notwithstanding, it was discovered that interest criteria in light of institutional status may have made higher boundaries to passage than should be expected. For the purpose of resolving these issues, Reserve bank of Australia came up with specialist credit card institutions (SCCIs) which were a better version of ADIs. This helped the entities who are not deposit-takers to undertake the process of card acquiring and issuing in the Mastercard and Visa card system. These entities will be supervised by APRA on the basis of risks involved in these institutions. The given reform was executed by improving the horizon of ‘banking businesses under the Banking Act 1959 in order to include credit card issuing and acquiring process in Australian MasterCard and Visa systems. This permitted a more extensive scope of planned members to be approved by APRA as ADIs and to end up qualified to partake in the card plans (European Commission, 2013).
In two consecutive years 2004 and 2005, the Reserve Bank of Australia came up with an access regime for Mastercard credit card system and Visa Credit card system, and Visa debit card system respectively. The objective of this new access regime is to balance out the controlling risk involved in payment system and the underlining competition and efficiency. The competition would be a result of wider eligibility criteria for accessing issuing or acquiring cards. The result of Access regimes is the eligibility of ADIs for participating in the card systems for Mastercard, Visa Credit card as well as Visa Debit Card in Australia. Also, there was no discrimination between APIs while assessing participation applications. The plans are likewise denied from keeping a member from being a backer just, an acquirer just, or both a guarantor and an acquirer. It is in any case up to the plans to evaluate whether to concede a substance as a member, subject to the necessities of the Access Regimes (Verdier, 2013).
3. Impact of treaties, conventions, and agreements on Mastercard, Australia
Australian credit and debit card systems were facing an issue of dual-network debit cards which was a result of competing payment options provided on a single device. These cards are basically issued by the banks and some other financial institutions with a very important functionality of point of sale from two different payment networks. This was the decision taken by the government of Australia because of the fact that it provided convenience to card users as well as encourages strong competition among different networks at point of sale. So, the final decision of the board was in favor of practicing the issue of dual-network debit cards in Australia. Soon, they faced a concern related to dual network card which was that a network might use certain configurations and rules which would not allow access to some payment functionalities related to other networks by the card-issuing institution on card of issuer (FSI, 2014).
Another very big concern regarding this practice was related to the rights of merchants, cardholders, card issuers and different networks in making a decision on which network to use for a particular transaction. As of now, it is in the hands of debit card holders to choose a particular network for their transaction with the help of choosing one of the three given options at the time of inserting their cards into the point of sale terminals. In addition to that, merchants were also provided with the ability to make choices concerning with routing of transactions. Now, choosing a network among all the available options for transaction purposes has become an area of concern because of the increased use of contactless authentication. The reason behind this is that with contactless technology, there comes some element of automaticity while routing a transaction. Although, the option of automatic dual card system, card holders and merchants are no longer required to choose from the given payment as well as network types at the point of sale terminal (Carter, 2016).
As a result of these concerns and issues related to choosing payment and network systems, the government decided in the year 2013 to come up with dual network debit cards in agreement with three debit card networks available in the country namely EFTPOS, Mastercard and Visa. This agreement among these debit card networks was voluntary and was based on the principles related to dual-network debit cards. The main objective of this agreement was to maintain the arrangement for dual network which is already existing in an environment which is contactless. Another objective was to prevent the rights of owning transaction routing priorities by merchants from getting violated. There were some ground rules set up by the government of Australia concerning to this particular agreement with the understanding of banks and till this day, no agreement breach has been recorded. One of them was, giving an option to buying groups of small merchants to make an altogether different group for the purpose of making negotiations related to lower interchange rates. This is because lower interchange rates are only accessible to large merchants, subject to any competition law restrictions (Hayashi, 2015).
Another important agreement which we are going to discuss here is related to future interchange system which continued to produce large gaps in interchange rates which was a concern of several merchants. A settlement among US merchants, Mastercard and Visa took place in the year 2012 which was a part of interchange rate issue. One of the most important parts of this agreement was that card companies were required to meet with merchant buying groups but as expected, the provision of card schemes offering similar rates to groups of merchants bringing similar amounts of transactions was not a part of this agreement. The proposal of reform included a ceiling on interchange fees applied on the cards that were utilized by consumers and that is the reason why it was difficult for the retailers to say no to it. As per the new agreements and regulations, interchange fees involving such transactions who have a ceiling of 30 basis points for credit cards and 20 basis points in case of debit cards. There is also an option for member states to apply a ceiling of fixed value with a cap of basis points or for that matter configuring the ceiling in the form of a sum of fixed value and percentage rate in case of domestic debit card transactions. While tops of 30 and 20 premises indicate have beforehand been concurred by MasterCard and Visa for cross-outskirt exchanges in the EEA, execution has been blended, so the EC has chosen that there is a requirement for an expansive administrative top applying to all exchanges including universal and household four-party plans (Rochet, 2012).