MONNINGTON, Mr Paul, Division President, Australasia, Mastercard [by video link] WORMALD, Mr Richard, President, Asia Pacific, Mastercard [by video link] [12:27] CHAIR: Welcome. Do you have any comments to make on the capacity in which you appear today? Mr Wormald : I felt it was important that I attend in person because, prior to January this year, I was accountable for the Australian and New Zealand business for the prior eight years. I bring with me Paul Monnington, who has now replaced me in that role. CHAIR: Before we proceed, I just want to advise you that, although the committee does not require you to give evidence under oath, the hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Given your circumstances in terms of appearance, I understand you are appearing from outside Australia and that the secretariat has provided you with information that this limits the protection offered to you under parliamentary privilege, as this protection cannot be enforced outside Australia. With that warm introduction, I now invite you to make an opening statement before we proceed to questions. Mr Wormald : Thank you, Chair. I will be brief. To begin with, I want to set out how Mastercard's role in the payment system operates. We provide the infrastructure that allows money to move securely through the economy in Australia and around the world. Our network is built on a simple promise to consumers and businesses: wherever you are in the world and however you choose to pay, your Mastercard will work seamlessly and securely and, if something goes wrong, you will be protected and get your money back. We do not lend money. We don't set interest rates or issue credit cards. Those responsibilities sit with consumers' banks. We do not set the price that small business pays to accept payments or provide point-of-sale terminals. Those responsibilities sit with the merchants' banks or payment service providers. Before turning to the detail, it's important to recognise the level of change that the payment system is undergoing at the moment, and, whilst the value and volume of digital payments have increased significantly, the cost has also fallen at the same time. Independent research by Boston Consulting Group shows Australia has amongst the lowest card acceptance costs in the world and that cards are the cheapest way for retailers to get paid. These costs are already lower than they are in the UK, the US and the EU, and, based on BCG's analysis, Mastercard's fees account for only seven per cent of the total cost of acceptance. This inquiry comes at a critical time for Australia's payment system. While the regulatory framework is evolving through Treasury's work on the RBA's role, this committee has an opportunity to recalibrate the focus of that work. As you hear from participants over the next days, we'd encourage the committee to consider the following recommendations. Firstly, Australia has a problem with surcharging. Surcharging was originally introduced in 2002 to signal the cost of payments to consumers. However, while the cost of payments has decreased since then, new payment service providers have pioneered what we would call the free EFTPOS model, and it works like this: 'Sign up to my premium plan with added features. It will cost you nothing because you pass on all the costs to consumers as a surcharge.' This model is uniquely Australian and often costs 40 to 50 per cent more than the basic plans offered by all of the major banks. This is why we would say the Treasury was right to ban surcharging, and we'd urge this committee to support the recommendation and push for a full ban. Secondly, there is a need to take a whole-of-system view. Last year, the RBA commenced its review into surcharging and acceptance costs. Their proposed action plan was widely criticised across industry, and, hence, the RBA has extended its time for this review. Part of the problem, we'd argue, is that the RBA mandate has been too narrowly focused on merchant cost of acceptance, and we believe that payment regulation should take a whole-of-system view with the consumer at the centre. At the end of the day, it's consumers that pay the surcharges. They pay the prices if the costs of goods rise, they pay the higher interest rates on credit cards if interchange is cut and they pay the annual fees on debit and credit cards. They're also impacted if they can't access credit when they need it the most. So we would encourage the committee to consider a best-interest test in the RBA mandate, to ensure that future regulation puts consumers first. Finally, much has been said about the cost to small business for payments. In 2022, Mastercard introduced a small-business program in Australia that provides lower interchange rates, comparable to those of big business, and reduced scheme fees as well. Whilst a number of acquirers have adopted the program, we cannot force those partners to pass on the savings to small business. In Canada, the central bank coordinated the introduction of a consistent set of programs across the networks, and transparency measures helped ensure the savings were passed on. We'd encourage the committee to recommend a similar approach in Australia, as others have mentioned. Thank you. We look forward to your questions. CHAIR: Thank you. I've had an interest in these issues over the years, but I've never before had the opportunity to delve into them in such a detailed way as this inquiry has afforded me. It just seems like, for ordinary consumers, they are forced to sit inside a bar while a mighty fight is going on between all these different big players. There might be differences of advantage that swing from banks to card providers to acquirers to merchants, but it's always going to be the consumer that cops the wayward bottle in the head. They don't really get much benefit. They're increasingly discouraged from using cash. I'm sorry to stand on my soapbox with the word 'populism' on the front of it, but the reality is that the lived experience of a lot of consumers is they're discouraged from using cash. They then have to go and use cards. If they're using credit cards, there's a whole set of conditions or fees attached to them. This complexity that is baked into the system makes it hard for things to be transparent. Despite the talk of competition in the payments space, in Australia the scheme fees have gone up by $2 billion and grow at a rate of 11 per cent. That doesn't suggest to me any sense of competition at all. While it's great to hear you say that consumers should be put at the heart of this, I don't know whether or not they're actually going to see any benefit that comes out of any reform. The other thing I'd point out is that it's interesting to see that, across a variety of jurisdictions, governments, such as the UK, the EU, Canada and even the US, are now actively looking at trying to inject something better into the system. This is a long way of saying that this system is really messed up. The consumer loses out. The only advantage comes if you can get some sort of benefit shift from one player to the other, with, ultimately, no benefit to the average person on the street. If you think I'm completely wrong, I'm happy for you to tell me where I'm wrong. But it does seem, increasingly, based on the evidence, that that's where things are headed. You tell me if I'm wrong. I'm happy for you to. Mr Wormald : There are two things I'd say. First of all, if you benchmark the Australian payment system to others around the world—and BCG did some good analysis on this last year across a range of markets—what you see is that the Australian payment system is highly efficient. The costs are actually already amongst the lowest in the world and have driven significant productivity improvement across the Australian economy over the last decade and more. Contactless payments are now 98 per cent of in-store transactions. That, as I think we were talking about earlier, has saved retailers millions and millions of dollars in productivity improvements. The system is efficient already, but we do agree that consumers should be at the centre of that. I think the debate has become skewed by a focus just on merchant acceptance, without due regard to the implications for consumers. If you look at other markets around the world—the UK is one example—they proceeded down a path of cutting credit interchange to the levels that the RBA is proposing here. What happened in the following years was that credit card interest rates went from 15 per cent to 20 per cent to, now, 36 per cent. That's why we'd argue you have to have a whole ecosystem view to ensure that you don't have unintended consequences on consumers overall. CHAIR: How many scheme fees do you operate in Australia? Mr Wormald : We have that in detail. I'll hand to Paul, who has that detail now. Mr Monnington : In terms of the number of scheme fees that we billed in 2025, it was 122. The top 15 were actually 75 per cent of those fees. Those fees are there for us to continue innovation and any new services, such as agentic et cetera, and also to maintain the integrity of the system. In terms of us, we actually discussed that with, and sent bulletins out to, our acquirers. It's our acquirers who we wholesale those fees to, and those acquirers then understand those fees. They have a system called Mastercard Connect that they can go into. They can look at the detail and see the bulletins and all of those details. We discussed those in a lot of detail with each of the acquirers. Mr Wormald : I'd add that the way we think about our pricing structure—yes, it's true there are a large number; there were 122 in Australia last year—is that we try and ensure that participants only pay for the services they use on the network. I'll give you an example. We have a service called Stand-In. When a major bank fails, either on the customer side or the merchant side, the systems go down. Traditionally, that would have meant the retailer couldn't process payments and the consumer couldn't make payments. But we've developed a service using AI that, when a bank goes down, automatically kicks in and mimics the response of the bank so that the retailer can keep trading and the consumer can still spend. We only charge for that when it's used. That adds complexity. That can't be forecast because it's unknown when a platform will fail. But, in doing so, it's more efficient, because those partners that invest in resilience and have more reliable platforms don't pay those fees, whilst those that have less reliable platforms and rely on the network do pay for it. So there's good reason why there's that complexity that's built up over time. However, we recognise and we hear the feedback that we need to do more to support our acquirers—they are the party that contracts with a merchant—so we're building a fee emulator that acquirers can use to help merchants understand the fees and forecast them. We're happy for acquirers to share the detailed fees with merchants as well—those that are on interchange++ arrangements. We recognise there's more work for us to do. But, when you step back and look at it, we have this complexity because it is a complex world. There are significant threats ahead of us around cyber and fraud that we're trying to address, and so there are trade-offs between how we build for efficiency, and complexity. CHAIR: I'm going to hand over to Ms Jarrett and then to Mr Violi after her. Ms JARRETT: I want to go back to a couple of things that we've heard this morning and also to some comments that you made. We've heard that scheme fees are obviously opaque; they're complex. I won't go into some of the questioning that others had, because my colleagues will probably go down that path. Can we literally simplify and make scheme fees more transparent and comparable across the board, because, from what we're hearing this morning, it's so complex and so different? Mr Monnington : To clarify, in terms of the transparency, the scheme fees are completely transparent for the acquirers, who actually— Ms JARRETT: To the acquirers, but what about the merchants and the consumers? Mr Monnington : If I take you through, from an acquirer perspective—a lot of acquirers will build models around the scheme fees. They'll actually map out those scheme fees and reconcile the actuals against those scheme fees, and they'll forecast those scheme fees for each of their merchants. In a previous world, that's what I did. We would actually discuss those scheme fees and what the forecasts were with the relevant merchants. It obviously depends on whether there are more card-not-present transactions, credit transactions et cetera. That's the role of the acquirer: to then sit with those merchants and actually discuss that forecast and how that's going to be. Also, in terms of small business, as Rich mentioned, when we sit with those acquirers and we're building this fee emulator, we know that some acquirers are better at those models than others, which is why we're building the fee emulator, so we can help them. As they go through that, we're more than happy for them to communicate those fees to the end-merchants of the forecast. Ms JARRETT: Yes, but, if you're a merchant, you're doing it for yourself; Visa might be doing it for them. I'm looking at how we can make it more transparent across— Mr Monnington : I think you're absolutely right. That's why acquirers need to do them for Visa, Mastercard, EFTPOS, Amex—all of the above. They need to take those and forecast them out, look at that impact on those merchants and describe that to them. Mr Wormald : Here's one way to think about this. When you go to a restaurant, the restaurant owner has a menu and sets the prices. They decide what services they're offering. They decide the prices they're going to sell them for. The role of the acquirer is like the restaurant and the merchants are the customers who come in. We're a wholesaler. We're like the beef supplier. The end customer coming into a restaurant doesn't need to know what the cost of the beef is. They go to look at the services that are offered. Merchants are looking at different providers and deciding which range of services is most appropriate for their needs. For some smaller merchants, they want simplicity and they want bundled services. Our costs, when you look at the BCG analysis, are seven per cent of the total cost of acceptance. It's important for the committee to consider the other 93 per cent, which is really where the cost is in the equation. Those costs are broken down into three buckets. The first is the direct costs—so Jerome's coffee cup; the transaction components there. There's also the cost of the terminal, the set-up required to process payments, and fraud. Then there's the back office reconciliation costs. So you've got to look across the whole end-to-end system to understand the cost of payments. That's why, when you step back and look at it, cards are actually the cheapest way for retailers to get paid. They give most efficiency and security, and that's why you see many retailers favouring cards over other forms of payment—because they're the most efficient. Ms JARRETT: I'm not sure I'd go with the analogy between restaurants and payments of credit cards. Be that as it may, you did also say that we should be taking a whole system view—and I do agree with that—but where exactly should we be focusing if we're looking at increasing efficiency, adopting new technologies, protecting consumers and keeping costs low for merchants and consumers? I know that's a very big question. Mr Wormald : I think the place to start, as I said in my opening statement, is to put the consumer front and centre because, yes, this system is complex and there are many players, but the costs are ultimately borne by consumers, either through surcharges on the merchant side—the cost of payments impacting cost of goods—or on the cost and their access to financial services. One of the submissions to the committee was from COSBOA, representing the smaller banks. When you think about the trade-offs that need to be made, we need to decide how we want to balance the costs in the system. Merchants should make a reasonable contribution towards the cost of the network—they see significant benefit—but that shouldn't come at the expense of consumers. When the RBA announced their proposed changes late last year, one of the reasons that almost all stakeholders pushed back was feeling that balance was wrong. I'll give you a couple of examples. One is we know that, when you cut interchange more broadly but only 10 per cent of merchants actually surcharge, 90 per cent of that benefit goes to merchants that don't surcharge. So there's no benefit on the merchant side. On the cost impact to consumers, we can see from the UK, for example, it will impact access to credit and cost of credit. Who pays for that? It's the consumers that are less well off and need access to credit for cash flow. It's not about rewards cards. That's why it's important to get this balance right. The consumer should be at the centre of payment regulation. Ms JARRETT: I have one last question, Chair, if that's okay. Looking at technological developments and the future of payments—bitcoin, stablecoin et cetera—does that offer an opportunity for consumers to be better off? How should we be thinking about that then, if that's the case? Mr Wormald : There's the cost-of-goods side of consumer experience that many, I think, participants before the committee have already touched on. When you look to the other consumer impacts and the opportunity to be well off, access to credit—cost of credit—is one of the major opportunities. The regulators in Australia have done a good job in making sure access to credit is responsible. ASIC, with the NCCP, has made sure that lending in Australia is well regulated, but we have choices in those policy settings. If we want lower interest rates and more access to credit, we need to encourage more providers, and that's to make the system more sustainable. If you look at the interest rates that a small business might borrow at in Australia, they might be 12 per cent. A one-month cash flow benefit is roughly one per cent. Credit interchange settings in Australia are already less than that, so there is this waterbed effect where, if you make changes on one side, you impact the other side as well. Ms JARRETT: Are you saying, therefore, that future technology or technologies that we have now that are going to be growing and integrated into our payment systems and financial markets—bitcoin, stablecoin et cetera—are going to lead to that? Mr Wormald : I think, when you look ahead, probably the next wave of change we would see in the Australian payment system is with the use of artificial intelligence in payments—agentic commerce, the ability for a consumer to instruct an agent to do research and then make payments on their behalf, therefore finding opportunities to find lower cost options from retailers and make those payments seamlessly. We have actually already piloted the first live agentic transactions in Australia with an Australian large language model called Matilda, with Australian payment service provider IPSI, with Australian merchant Event Cinemas and with a number of the Australian banks as well. That's one of the ways the global networks are providing investment and opportunity to access these capabilities at very low cost in Australia. That pilot, by the way, was conducted really between November last year and January this year, so it's come to market very quickly. I think that is the next closest innovation. I'd say stablecoins and central bank digital currencies are probably some way further out yet. There's not yet certainty as to how those networks will evolve in Australia or many markets around the world. Mr VIOLI: You referenced the seven per cent as a percentage, which has been referenced a lot today. It's a little bit deceptive, is it not, in the sense that your charges are on every transaction. If you look at a terminal cost—let's just say it's $100 a month rental fee for a terminal cost—as a business, particularly a small business, hits a certain point of sales they'll have essentially covered that cost. It will then not be part of their unit of goods, moving forward, or they can amortise it across. Your transactions are on every transaction. They don't reach a point where they avoid paying that fee. So it will have a greater impact on their total business cost of goods sold. Would you agree with that? Mr Monnington : It's still a valid cost, right? It depends on how many transactions they're doing. They'll have the cost of the terminal, which is not insufficient, and they'll also have the cost, potentially, of integration middleware, which they also pay for. So it may not be at a transaction level but it's still a relevant cost. For small businesses who are not doing that many transactions, it's actually a substantial cost that goes into the overall cost. Mr VIOLI: Correct. I agree, the point being that over time they will amortise that cost. They cannot amortise over time, based on volume of sales in a day or a week or a month, the fee that you charge. I think that's an important distinction to make, because these conversations around Mastercard and your competitor Visa go to every transaction for small business, in particular, and large business. If we can reduce that cost it's going to, hopefully, keep those businesses, particularly family businesses, more sustainable or flow through to consumers, which is what we're focused on. I want to talk around your model, and I understand it's essentially a distributor model where you go to acquirers. Do you also, in Australia, go directly to the large-scale businesses—a Woolworths or a Coles, those large-scale businesses—and provide services directly to those businesses? Mr Wormald : Just before we answer that, I'll come back to the seven per cent. That's independent analysis from BCG. It's not from us. When you look at the 93 per cent, the costs through that do occur on every transaction. The acquirer margin and interchange are on every transaction. The fraud cost is on every transaction. The back-office reconciliation costs are on every transaction. The terminal cost is amortised and will need to be replaced. There won't be a point where that's fully amortised and gone to zero, because they don't last forever. They last a couple of years. So the seven per cent is an accurate reflection of our cost as a proportion of acceptance costs. When you back up and look at Australia's payment system, we have amongst the lowest payment costs in the world. In answer to your second question around whether we deal with merchants directly, we do have relationships with major merchants. My background is I used to work for Wesfarmers beforehand and dealt with Mastercard, Visa and American Express on the other side. Paul obviously had experience with Woolworths as well. We offer a range of services, beyond payments to those retailers, from cybersecurity protection, data analytics and loyalty. Our payment network is part of our business but our relationship in the B2B space with retailers, with government and with other players goes beyond that as well. That's, in large part, where we have those relationships, whether they be retailers or telcos or other players in the system. Mr VIOLI: I understand there are other services you provide to them, but if you're going directly to them—I've been in the business world with the distributor model. Those distributors or acquirers need to make a margin. If you're going directly to those larger businesses, would it be fair to say—I understand you can't give exact details but as a general comment—they would be receiving a better rate than a small business, based on the volume they would do with your organisation? Mr Monnington : If you compare small business and the large businesses, obviously the large businesses—if you go down to the coffee cup analogy, we had interchange, scheme fees and acquirer margins. We can compare those three. Start off with interchange and scheme fees. Interchange are the strategic merchant rates for larger businesses. For the small businesses— Mr VIOLI: Sorry to interrupt. Just to be clear, but strategic merchant rates is another way of saying a lower rate for a larger customer. Mr Monnington : Yes. That's based on volume. However, we also give strategic rates through our small business program. As Rich mentioned, that was introduced in 2022. We've since revised that. That gives virtually the same rate from an interchange perspective to merchants within that program. The scheme fees are fairly standardised, although with the strategic rate on small business, under the small business program, we actually give a 50 per cent discount on most fees around that. So they actually benefit in that area. If you compare the coffee cup on those two, they're very similar from scheme fee and interchange perspectives. Your acquirer margins will vary very much from large business to small business. Mr VIOLI: How many of your small businesses would be on that small business program? Mr Wormald : I'd have to take that on notice. We're happy to provide the full details. It's fair to say it's not been fully adopted by all acquirers, and we're not able to require those acquirers to pass on the savings. They set their prices to their merchants commercially, which is why we suggest that a coordinated approach led by the Reserve Bank, as has occurred in Canada, would ensure that there is alignment of those small business programs. For example, we have a small business program on credit and debit; Visa only have one on debit. The programs are different. They've obviously been created independently. EFTPOS have a different program again. This is something that we can't coordinate with other players, nor would we seek to. It's something the Reserve Bank should take the lead on. We believe, when you look at a surcharge ban together with a Canada-style change, you could easily see small business rates moving from the current 1.6 to 1.8 per cent to around one per cent, which would then be probably the lowest in the world. Mr VIOLI: Is there a legal reason why you cannot require the acquirer to pass it on? The reason I ask is twofold. Again, I've worked in this industry, where we would offer discounts to distributors or other middle-people businesses, but we would require that that percentage discount would be passed on to the consumer to drive increased sales. Otherwise, we're essentially reducing our margin to give the acquirer a greater margin. The whole point of you offering the discount for small business is to drive increased sales, I would have thought. Are you not able to legally or do you just choose not to as part of your negotiations with those acquirers? Mr Wormald : Our advice is that we can't legally intervene in the price setting that a merchant has with their acquirer. Mr VIOLI: Well, respectfully, why do you offer a discount? CHAIR: That's hard to believe. Mr VIOLI: Why do you offer a discount to an acquirer with no guarantee that it's going to drive increased sales? Why would a business that needs to deliver a profit, being Mastercard, reduce your margin with no benefit to the small business to drive increased sales on a pure business case? Mr Wormald : Exactly. So it's an intensely competitive market. We felt that, in order to be competitive, we needed to offer a small business program. As the RBA said earlier this morning, in their view, they felt there was sufficient competition in the acquiring market that over time those savings would be passed on. So we introduced our program in 2022. I think other networks have only more recently done so. So this is a relatively recent change. If you take the RBA's view at face value, they believe that over time competition will result in those savings being passed on. CHAIR: Where's the evidence of that? Sorry. Mr VIOLI: No, go for it, Chair. CHAIR: Where is the evidence that that gets passed on? The volume argument blows my mind. If you were a toll operator, you would not give a discount to haulage, because they use your toll roads that much, because you've got to use that money to keep the system—the actual network deal—within capital expenditure, operational expenditure, whatever. But, somehow, smaller SMEs have to still pay up. There's no discount for them, but the people who use it the most, who no doubt attract the highest risk, get off with a discount. Where is the fairness in that? And to Mr Violi's question, he's spot on. Why would you willingly make that cut and then say that it's designed to help, but there's no proof, and you can't contractually through your system require the pass through to the smaller business? Mr Wormald : As other representatives before the committee today have said, there is complexity in the system. There are many participants here as well. We are running a global network that we believe provides real productivity and efficiency benefits to businesses of all sizes. We've invested over $16 billion in cyber and fraud protection over the last few years alone. When we look at the small business space, we want to compete, we want to be efficient, and we want to help our acquirers offer effective, efficient services to those players. That's why we produced the small business program in 2022. We would say that the problem is not what we've done; it's the overall ecosystem adoption of that, which we can't control, because we're only one player in an overall network with many other players as well. It's why this committee, we think, can add real value and direction to the future payment policy framework in Australia. One option amongst others is what's happened in Canada. CHAIR: These are small business programs that can't be guaranteed to help small business. Mr VIOLI: Respectfully, it sounds very much from not just your testimony but others' testimony today that it's the small businesses in my community of Casey and across the country that are actually underpinning large businesses in Australia and underpinning this business model for you and others. Given you're going directly and offering discounts to large business and there are no evidence and no desire to pass that benefit onto the small businesses that are needing to charge this surcharge—because you talk about the 10 per cent. The reason small businesses, clearly, are charging the 10 per cent is that their cost of business is so high they need to pass it on to consumers. We now find out that larger businesses don't need to charge a surcharge, because they're getting greater deals and greater access. While there might be a scheme, there is no desire to make sure that gets to small businesses. I'm someone who spent my life in sales and in business. If there is a desire to get it to the end consumer, it will happen. Businesses will make sure, if it's in their interest, to get it to the end. It is very disappointing to hear that it is not getting to the small businesses that are risking it all and deserve it. I appreciate, Chair, that I've taken a fair bit of time. I'll pass the call. CHAIR: Over to Mr Gregg. Mr GREGG: You took the words right out of my mouth there, Aaron. The recommendation in your report talks to moving from a cost based look at this to a value based approach. In the context of small businesses having to pay the sizeable share of the fees, is there a risk of a value-to-cost approach entrenching existing market power with Mastercard and Visa rather than assisting the competitive landscape? Mr Wormald : I think, when you look at the market structure in Australia, the '85 to 90 per cent' view of our share is just incorrect. When you look at the Australian Payments Network, it's actually dominated by Australian domestic payment networks. Actually only five per cent of payments in Australia are processed on any card network. BECS is the largest network, which is obviously Australian owned and operated. Even when you remove that, the AP+ organisation, which has NPP, EFTPOS and BPAY, processed 2½ times as many transactions as all of the international networks combined. Our share in Australia, we would argue, is at best 11 per cent of the market. So we're not a dominant player. We provide good value because we provide an efficient, safe and secure network. But we compete every day for every transaction on that network and will continue to do so. Mr GREGG: But that would go to your role as well, mostly being transaction things in stores and things like that. Obviously, when a business is paying a wage or something like that, Visa or Mastercard aren't being used. So your stats are including a lot of transactions which the business model of Visa and Mastercard have not in any way sought to be part of. Would that— Mr Wormald : That's not true. In Australia we have actually built an overlay service on the New Payments Platform in the last three years. We're experimenting with that at the moment. In other markets, we actually offer account-to-account payment services, and we do those effectively and efficiently in a number of markets in Asia and around the world as well. Historically, say 60 years ago, we started with credit cards with click-clack machines, but over the 50 years we've moved from magstripe to chip-and-pin cards to contactless and now to AI. When we look at the market opportunity both here and in Australia, we would say our market share is 11 per cent, and we believe we can add a lot of value to many of those other flows. I mean, Australians lost more than $2.8 billion to scams last year. We have technology platforms that can help address that problem and bring real value to some of those other flows in the market as well. Mr GREGG: Another one of your recommendations goes to the adoption, as you were saying before, of a voluntary industry agreement like what is seen in Canada. Why do you think that would be more effective than rules requiring these savings to be passed to small businesses? Mr Wormald : That would be an alternative model. What I'd say is that it's for the regulators to determine what the appropriate path forward is, but there clearly are opportunities ahead of us to reduce costs for small business. I was in New Zealand recently. New Zealand has also announced a ban on surcharging and had previously seen this sort of free EFTPOS model proliferate. What's happening in New Zealand now is that those new entrants have pivoted their model. They've reduced their cost to merchants to around one per cent. They've done that by simplifying the plans. They've removed American Express from those bundled plans because it's more expensive. That's available as an optional extra. When you look in Australia, all four of the major banks already offer basic payment plans of around 1.1 to 1.2 per cent. That's before any Canada-style small-business program comes into force. When you look at the free EFTPOS models, they're 40 to 50 per cent more than that, and that obviously is resulting in higher surcharges for consumers. So there are clear opportunities ahead of us. New Zealand is not far away. It's a similar market structure and they are seeing some progress on the issue already. Mr GREGG: I've noticed you've made a lot of global comparisons. Obviously, Visa and Mastercard contribute to that environment in each jurisdiction, so all of them are influenced in some way by Visa and Mastercard. Going back to what I was asking your colleague from Visa before—some of the banks themselves have expressed concerns about the opaque and difficult nature of the fee structures in schemes. Do you think there's any truth to it, and could you describe any places where you think there's room for improvement in the way that these schemes are communicated with banks and their capacity, as acquirers, to negotiate deals for their customers and for themselves? Mr Monnington : I think I mentioned earlier that we've got a robust process for those changes. When we put changes out, we put bulletins out to the banks. We then will schedule meetings with each of the banks on the actual impacts of those. We'll run through those. If there are any price impacts to them and any changes from that, we'll actually model those out and walk them through it, as well. Those will be scheduled in for about six or nine months down the line. Because we're on an integrated network with the banks and the acquirers, we obviously need to maintain the integrity of that network. There may be technical changes, and we need to walk them through those as well, all in lockstep. I think we've seen that we can actually help further. As I said before, each of the acquirers will have their own models and they will model each of those out, but some are better than others and I think we can help more with a fee emulator that we're building so that it can then help them forecast and look at those changes around that side. So, from that side, it's pretty clear that we can help more, and we're trying to do that. In terms of the fee changes around that, most of the fee changes are behavioural—trying to get integrity on the network. If someone's, say, sending through too many approvals, then we would charge for that because those kinds of things are not good for the network. Some of them are actually requested from the banks, as I think I mentioned. One such one last year was where one of the parameters was in USD and we changed that. They requested it to change to AUD, so we did that change as well. So it's easier for them to change that. Quite a number of them—about 25 per cent—last year were opt-in. They can choose to opt in or not. We'll discuss all of those with the banks and the acquirers. We'll run through where they've got issues around technical implications and the need to defer. We will consider those, and we'll consider a waiver and defer some of those things as well. We have done that in the past. Mr GREGG: If their concern is with cost, how often will those meetings result in a change in costs paid by the acquirer? What if they're like, 'There's no value-add for this. We don't need it and we don't want it. We've got other safeguards that cover what you're talking about. We don't want any part in this change'? I know that one of the complaints was that there's no opt-out of some of these scheme changes. Are you saying that they can always opt in and out of new— Mr Monnington : Some of the changes, obviously, are integral to the network for us to do that. Some of them are behavioural, so, if they don't do those behaviours, they don't pay for the fees. Some of them are opt-out, some of them are opt-in. If you look at the changes last year, one was obviously small business, which actually reduced some of those fees. One was commercial, so not to do with retail. One was to do with ATM surcharging, as an example. So they're specific and they're integral to the nature of the network. Where there are specific issues with an acquirer to actually meet those, we will have discussions. Mr GREGG: So does that mean in your arrangements with acquirers there is scope for you to unilaterally change the terms of your arrangement with banks in the life of a relationship? Mr Wormald : No, that's not the case. Where we identify a security weakness, and that's a rare case, that's something that the banks would need to implement for their own safety, for the safety of their own consumers. But many of the changes we introduce are opt-in. It's up to the banks to decide if they want to avail themselves of those services or not. And if they opt out, they don't pay for them. Mr GREGG: So they are always able to opt out of things that are not security related? Mr Wormald : That's largely true, and that's certainly our model as we look forwards. Coming back to the start of your question, our fees are not opaque; they're very transparent to the acquirers that pay them. We recognise there's more we need to do to help some acquirers understand them and be able to explain them to merchants, and we're working on that. It's not 400. Last year it was 122, of which 15 accounted for 75 per cent of the total cost. There is a big difference between opaqueness and complexity. I mean, we're living in a world where the threats from bad actors have never been higher. Our network is under attack daily from bad actors around the world. Touch wood—so far we have managed to ensure the security and safety of that network for more than 60 years. That requires consistency. It requires diligence and focus. So it is complex but it's not opaque. It's clear to the acquirers that pay those fees what they're for. Mr GREGG: Thank you very much. Ms CAMPBELL: Just to change gears a little bit at the outset, I want to ask about some of the work that you're doing in tokenization and biometric check-outs. I know you've got pilots for these. I think that one of them is based on my own personal worst nightmare, which is pay by smile. Can you take us through what the big risks are that you're seeing in that safety space from those pilots? Mr Wormald : In Australia last year there was around $900 million of fraud on card networks. That was auspaynet's data. That was almost entirely in ecommerce—customers buying online. Now what we've seen over recent years is an increase in attacks on retailers that are storing customers' card data. Your card number is stolen, it ends up on the dark web, it gets resold to a bad actor, then you see a transaction on your account you don't recognise. That's the problem we're trying to solve with tokenization. Ms CAMPBELL: I understand the benefits. I'm asking the flip side. I am asking: What are the unintended things that have happened in those pilots in terms of the things that we're trying to solve? What has happened that you didn't expect? Mr Wormald : I'm not sure we didn't expect it, but certainly in our pilot work addressing ecommerce check-out, there are a lot of changes required across the whole system. Mastercard is accepted in 150 million places around the world. So, for many years, there have been places where consumers have had to put their card number into the check-out. Our work on tokenization on pilots is one part of it, to try and reduce the places where customers put those card numbers into the system. We're also seeing on the other side that we ultimately need to take away the card number and make cards numberless so that a consumer, when they're checking out online, doesn't get their card out and put in a fixed number. Instead, they go to their banking app. They create a one-time use card number and then, if that's stolen, it is useless to the bad actors. So what we're seeing is there are multiple steps that we're going to have to take, both in Australia and around the world, which will take a number of years, to protect consumers. That's why there is significant investment going into the network, both here and around the world. And that's also why we have to, in some cases, require banks to make upgrades to the network to ensure its security. Ms CAMPBELL: I want to come back to small businesses briefly. In terms of the 50 per cent discount on fees that small businesses would get if the acquirer passes it through, how do you do 50 per cent off fees? How do you do literally a half-cut price in a model? Mr Wormald : We build the acquirer, not the merchant. Ms CAMPBELL: I understand that. If we're back in our coffee store and I said, 'Oh, great. I am going to cut the cost of coffee by 50 per cent,' I don't think many people could do that. How can you do that? Mr Wormald : We focused this program specifically on small business, and most small businesses operate in store. In-store transactions are safer. So, as transactions become safer and lower risk, we have over a number of years lowered our fees. This is one of the ways we're doing it, because we recognise that small business is in-store, contactless. The digital wallets have made those transactions more secure over time whereas in ecommerce there's still a lot of work to do. They're higher risk, so our fees reflect the risk of those transactions, the value that we provide. That's why we've been able to reduce our fees in that space, because in our view they are now lower risk; therefore, that's our small-business program. Ms CAMPBELL: Visa appeared just before but they were doing 70 per cent. Why is there risk at that kind of 70 per cent discount rate and yours is at 50? Mr Wormald : I'm not familiar with our competitors' programs. Obviously, we developed our program independently of the other networks, which is why we would argue that this is appropriate for central coordination through the Reserve Bank to align those programs. It might be that the settings that the RBA decides are somewhat different to ours or other networks. Ms CAMPBELL: You're not familiar with one your major competitor's programs? Mr Wormald : We have many competitors in the Australian market, certainly not just one. When you look at our capability in the credit space, Amex is the fastest-growing network. Buy now, pay later has grown very rapidly with some great innovation that's been led in Australia by many of those players. In the debit space there are EFTPOS and account-to-account payments. There are potentially emerging stablecoins. So it's not true that we have one competitor; we have many competitors. Ms CAMPBELL: This is my last question. In your submission, the first principle that you bring up in the recommendations is a value-over-cost payment policy principle. I understand what value over cost means but what does that mean for a small business? Mr Wormald : Well, for many small businesses today, if you look at the acquiring market, we've seen significant new entrants. I think there are more than 100 acquirers now in Australia. As the commentary from the big four banks mentioned earlier, they're scaling very well but not by being the cheapest providers; they're generally more expensive providers, and that suggests that cost is not the only factor that small businesses are taking into account. They're looking at the overall package. It is like any product—you know, what price is it? What features do I get? Therefore, how does it best suit my needs? That's why I said at the beginning, the RBA settings at the moment have overly focused on merchant cost at the expense of consumers. Ms CAMPBELL: Thank you. CHAIR: Ms Sitou, if you're online, over to you. Ms SITOU: Chair, I'm happy to give up my time for others given that we're running short of time. CHAIR: Mr Laxale. Mr LAXALE: Thanks for your evidence today. You've mentioned quite regularly that your scheme fees are transparent. Could you just pick a random acquirer and let us know what your scheme fee is to them? You can de-identify. Mr Wormald : I don't have that level of detail in front of me. Mr LAXALE: A ballpark? Mr Wormald : Our scheme fees in total are around seven per cent of total acceptance cost, according to the BCG analysis. It does vary by the type of transaction. The range will be between five basis points and 20 basis points. The RBA submission, I think, already outlined the overall range of that as well, but, obviously, it will vary by the transaction type. Mr LAXALE: Since the last major reform by the RBA on credit card surcharging, have your scheme fees increased or decreased? Mr Wormald : Some have increased and some have decreased. We've added a range of new services that didn't exist previously. We also consistently review our scheme fees to be competitive. Mr LAXALE: I'll rephrase that. Has the revenue you've received from scheme fees increased or decreased? Mr Wormald : Our revenue is a function of both price and volume, and electronic payments have increased, and so our revenue has gone up. But, actually, it's a very competitive market, and so some of our fees have gone down. We've introduced new services. We offer, we believe, good value compared to other options for merchants. As you see from the BCG analysis, cards are the cheapest way for retailers to get paid, and our fees are only seven per cent of the total cost of acceptance, and Australia's card costs are amongst the lowest in the world. Mr LAXALE: What is your annual revenue, by the way, in Australia? Mr Wormald : We don't disclose our annual revenue in Australia. We operate a global network. Australia represents a small fraction of our total volume, and the Australian businesses that connect to us and consumers benefit significantly for the global investments that we make that are effectively available to the Australian participants in the network because we're doing it at global scale. Mr LAXALE: Do you pay any tax in Australia? Mr Wormald : We do pay tax in Australia. I'm happy to provide the details on notice so the committee has the full details, but what I can say is we pay more tax in Australia than our nearest two comparable networks. We employ more people in Australia than those networks. We employ, in fact, 1,200 people and operate one of our largest technology hubs in Sydney, and we collect more tax than those other networks in Australia for the Australian government. Mr LAXALE: So you know what your competitors pay in tax but you don't know what they charge to small businesses? You mentioned before to Ms Campbell that— Mr Wormald : The tax reports are publicly available. Mr LAXALE: Do you pay banks, for example, rebates, performance bonuses or sign-on fees? Is that part of your business model? Mr Wormald : We have to compete for issuing banks to issue our cards. It's an intensely competitive market. The major banks determine the terms of those RFPs, so we have to compete on price and features and value, and so we do offer rebates on our issuing fees, because we have to to compete. On the acquiring side, we have a range of programs, and we also offer incentives and compete on price in a fiercely competitive market as well. Mr LAXALE: How long have you been offering rebates to issuers in Australia? Mr Wormald : The business is over 60 years old. The four-party model, as it was developed, balances incentives on both sides. It has always had incentives for rebate structures in order to drive the adoption of new technology, so that practice is not new. It's been around since the business model first started more than 60 years ago. Mr LAXALE: Has the amount that you've had to pay per acquirer gradually increased over time? Mr Wormald : Yes, it has, as a function of competition. As I said earlier, we fight for each transaction on our network. There are many alternatives, and so, when we look at our share of payments in Australia, it's, at best, 11 per cent, and that's excluding the BECS platform. There are many more capabilities that we believe we can bring to improve the safety and efficiency of the Australian payments network. It's highly competitive. Mr LAXALE: As far as I can see, over the last 25 years, interchange reform has decreased the revenue to the banks. You've just confirmed that the rebates you pay the banks have increased over time as well and that scheme fees have also gone up whilst the cost to the consumer isn't going down in terms of using these. I don't believe it's going down. It's the 8c in the $5 cup of coffee. Are you using these rebates to offset the bank's declining interchange revenue by increasing your scheme fees? Mr Wormald : No. If you look at the RBA's published data, the cost of payments in Australia has gone down over the last 10 to 20 years, and, when you benchmark Australia— Mr LAXALE: But scheme fees have gone up 11 per cent in the last year. Mr Wormald : Our scheme fees have not gone up by that much. The largest increase in scheme fees in the last few years—when you look at one of the other submissions that was provided, it was actually the EFTPOS network who increased their fees the most. I think that's because they're building new capability, which costs them money. They're entering channels that are higher risk, and so their costs actually went up much more than that of other networks. Mr LAXALE: You mentioned earlier that you are a small player in the payment system. I think those were your words. Correct me if I'm wrong. That seems to be at odds with the evidence that we've got, including data from the RBA. You're comparing it to total payments, whereas the focus of this inquiry and the surcharges view is consumer payments, where card transactions are at about 70 per cent or even higher with the declining use of cash. Do you accept that you're part of a duopoly in the cards payment network in Australia? Mr Wormald : No. In fact, when you look at the data, the Australian payments network is dominated by Australian networks, even in consumer payments. Mr LAXALE: I'm talking about consumer payments here. Mr Wormald : Yes, as am I. Every day, when I pay my bills on BPAY, I'm not using a card. When I make a payment on PayTo, I'm not using a card. When I make a buy-now-pay-later payment, I'm not using a card. There are many complexities. Mr LAXALE: We're talking about walking into a shop to buy something, or we'll go back to the cup of coffee. Are you suggesting that the majority of people are paying by BPAY and bank transfer? They're buying a cup of coffee with BPAY? Mr Wormald : Consumers of in-store retail do favour cards, as do merchants themselves, because it's the lowest cost, most efficient way to pay and be paid in Australia. That's in part because, across the industry, there has been large-scale coordination to adopt the new capabilities, like contactless. The RBA has been very supportive in driving that change to make Australian businesses more efficient. That's been the original genesis of the digital-payments drive that Australia really led the way on, and that lead was in part taken by the Reserve Bank themselves. Mr LAXALE: But no-one's going to Coles and paying for a bag of groceries using BPAY. You accept that, right? Mr Wormald : That's true, but that's only one part of retail. Mr LAXALE: Now that we've established what the question is— CHAIR: Hang on a second. When they go to pay for their petrol, they're not using BPAY. When they tap and go using the train network in Sydney, for example, they're not using BPAY. Yes, BPAY exists, but, to Mr Laxale's point, it's clear that Visa and Mastercard are the big, dominant players. It's effectively a duopoly. As much as you talk about competition, scheme fees are up 11 per cent—$2 billion worth. Our experience suggests otherwise. Mr Wormald : It's a very narrow definition. Mr LAXALE: Visa and yourselves seem to be at pains to give evidence that suggests you're not a duopoly, when it's clear as day to me that you are. Why do you have this hesitation to accept that you're a dominant player in the Australian payments industry for consumers? Mr Wormald : The data, even from the RBA, doesn't support that allegation. The Australian Payments Network processes two and a half times as many transactions as all the international networks combined. We operate services not just in cards—we've built an overlay on the New Payments Platform using account-to-account technology. There are many other alternatives to Mastercard. Ultimately, merchants decide what options they put in front of consumers, and they do choose cards. They are the most efficient way of paying and getting paid, and the Australian economy benefits significantly from the productivity improvements that that has provided and continues to provide. Mr LAXALE: Again, as with Visa, the reality seems to be very different from the evidence we're receiving in terms of how competitive you feel the market is. It's certainly not competitive for a small business that can't exit taking your payment network, and the banks gave evidence before saying that they couldn't exit providing mobile wallets. It's like you and Visa operate in a different reality to what small businesses live in. I'll leave my comments and questions there. CHAIR: I think we'll end it there. Thanks for appearing today. The committee secretariat will contact you in relation to any matters arising out of the hearing. You're going to be sent a copy of the transcript of your evidence, and you'll have an opportunity to request corrections to any transcription errors. Proceedings suspended from 13:31 to 14:01 .