Reserve Bank U-turn lets Paypal keep ban on surcharges

A change of heart at the Reserve Bank of Australia (RBA) has allowed eBay subsidiary - Paypal - to keeps its ban on surcharging. News of the surprise decision was released today - Tuesday 24th February – following last weeks quarterly meeting of the RBA’s Payment Systems Board (PSB).

The statement said essentially that Paypal was too small and unimportant for it to regulate on surcharging.

“PayPal is a relatively small player in the online market – outside of eBay, most merchants are able to decline acceptance of PayPal if the benefits of accepting it do not outweigh the costs of the restrictions. At this time, therefore, the Board is not convinced that the benefits of imposing regulation to remove the rule would outweigh the costs.”

PayPal isn’t completely off the hook, nevertheless, with the Bank warning that it could easily change its mind again, especially if PayPal grows.

“This assessment may change over time, particularly if the PayPal system grows significantly.”

And the bank said PayPal understands it is on notice.

“PayPal has indicated to the Bank that it accepts that if it were to increase in size substantially, its no-surcharge rule would need to be removed for consistency with other payment systems.”

PayPal has helped the bank sell its policy U-turn by giving it some good news to announce as well as the bad. PayPal has promised “it will not increase its standard published fees for eBay sellers for a period of two years.”

PayPal and eBay have also been let off the hook over eBay’s policy of forcing sellers to accept Paypal. As we predicted, the RBA has decided that, formally speaking, eBay’s auction business doesn’t qualify as a “payment system.” So the RBA’s Board has no regulatory power over it.

“The Board has also considered eBay’s rule that mandates acceptance of PayPal by sellers on eBay. In the Board’s view this rule, combined with the no-surcharge rule, is undesirable and limits competition between payment systems. While eBay itself is not a payment system, and thus falls outside the Board’s regulatory powers, the Bank encourages eBay to reconsider its policies in this area.”

The RBA’s statement also said it had looked at the alleged eBay ban on sellers telling buyers they prefer to be paid some other way than by PayPal.

It said that eBay had assured the Bank it doesn’t have such a ban.

However the RBA said it would look at the issue again if it becomes obvious the company isn’t living up to its promise.

Finally, the Board has been assured that eBay and PayPal’s current ‘no discouragement’ rules do not prevent sellers from expressing a preference for an alternative payment system. It will re-examine this issue if it becomes apparent that the ‘no discouragement’ policies are being implemented in such a way as to prevent sellers from exercising choice."

The RBA’s decision not to act on any of the eBay and/or PayPal issues it was looking at is somewhat surprising, given its previous statements.

Last August it said that:
“Where no-surcharge and no-steering rules have existed in other systems, the Board has encouraged their removal on the grounds that these rules can diminish competition in the payments system. Consistent with this, the Bank will shortly be holding discussions with PayPal with a view to seeking the removal of these rules.”

The U-turn is all the more surprising given that, following its December meeting, the Board gave no indication it was getting cold feet.

Indeed the December statement said the RBA was continuing its talks with Paypal, and specifically mentioned ‘merchant restrictions’ and PayPal’s ‘no–surcharge’ rule.

But presumably the Board has discovered it has more important matters on its mind.
The Global Financial Crisis is one obvious candidate.
So too is another controversial payments system reform, namely the introduction of direct ATM charges.

That latter reform, which is due to start in only a couple of weeks time, was supposed to stop banks from charging as much as $2 per transaction for withdrawing funds through another banks ATM.

But now some of the banks have said they’re going to keep on charging foreign ATM fees.

That’s hardly a vote of confidence in the RBA’s reforms and indeed is a direct challenge to the authority of the Payment Systems Board.

For more information go to
www.rba.gov.au