RBA sees end to physical cards in new digital age

THE Reserve Bank foresees bank cards going completely digital at some point and is pondering how it should react.

Cards “seem increasingly likely to be electronic payment credentials that are pushed out electronically to digital devices such as phones and wearables, as opposed to pieces of plastic that are mailed out in the post,” the RBA says in a new paper on retail payment regulations.

“The functionality offered by a card will no longer be largely fixed for the several years between issuance of physical cards, but will be able to be changed regularly reflecting innovation by schemes, issuers, mobile phone operators and others,” the RBA writes.

The central bank said it is concerned that future digital cards would only work with the international Visa and Mastercard debit functionality, rather than being dual-network cards that work with eftpos.

The RBA is trying to promote least-cost routing, where merchants are able to choose to route transactions via whichever of the two networks on the card costs them less to accept, to maintain competition between networks.

“For most merchants, payments via eftpos can be significantly cheaper for them to accept than payments via the international schemes,” the

RBA writes. The bank says that if digital single-network bank cards were to become more prominent, it might need to take more steps to encourage dual-network cards.

Some banks are not that committed to dual-network cards, with smaller issuers finding it costly to enable two different scheme networks on physical cards or in mobile wallets, the RBA says.

“Indeed, when issuers have introduced new functionality – such as enabling Apple Pay for cardholders – they have often done so first for an international scheme, with no firm plans for also enabling eftpos,” the RBA says.

The 36-page briefing paper asks stakeholders a number of questions about whether there are any gaps in how it regulates the payment card sector. In 2018/2019, Australians made 10 billion card payments for a total value of $678 billion, and accepting these payments cost Australian merchants $4.3 billion in fees, the RBA says.

The briefing also notes the rise in buy now, pay later services such as Afterpay, and asks whether policymakers should require these services to remove any no-surcharge rules they impose on merchants.

These services cost merchants around three to six per cent per transaction, and most buy now, pay later providers have rules forbidding them from passing on those costs.