Consumer, Mastercard and Visa all want surcharges for using a debit or credit card banned.
Mastercard and Consumer NZ say the Commerce Commission’s efforts to bring down “tap-and-go” and online card payment fees miss the biggest pain point.
Hate those little Eftpos machine stickers that say you’ll be charged 2%, 2.5% or more if you tap and pay by debit or target="_self">credit card?
“New Zealanders are paying too much to make and receive payments using Mastercard and Visa cards,” the Commerce Commission said shortly before Christmas.
In a draft decision, the regulator proposed caps on interchange fees – paid by a store’s card acquirer (usually its bank) to your card issuer (usually your bank) – for each transaction on Visa and Mastercard’s networks.
The market regulator said Kiwis paid some $1 billion in in-store and online merchant service fees and its proposed new caps would shave about $260 million off that total. The Commission estimates consumers are paying up to $150m in surcharges annually, with $65 million of that it considers excessive. Mastercard says that, in its view, $90m in surcharges are excessive.
But its efforts are being questioned by two players that are not often on the same page. Consumer NZ and Mastercard both want point-of-sale surcharges banned.
Consumer says caps on the interchange fees higher up the payments food chain won’t necessarily trickle down.
And Mastercard argues they could damage tourism – or even our economy as a whole – and make life more difficult for fintech firms.
“At Consumer, we believe the current surcharging situation is a mess. While we support the lowering of interchange fees, we are concerned that shoppers won’t necessarily see lower fees at the counter,” Consumer head of research Jessica Walker told the Herald.
“We understand the Commerce Commission has said it will consider some form of surcharge regulation; we are calling for an outright ban to be one of the options considered.”
Consumer NZ is concerned without surcharge regulation, the commission has no way to ensure interchange fee savings are passed on to consumers.
“Our view is a ban would be a simple and effective solution, with the benefits outweighing the risks,” Walker said.
Consumer also wants a clampdown on retailers – including some taxi firms and vending machine and parking operators – who charge a set fee for every card transaction, which can run to 20% or higher for small purchases.
Mastercard and Visa say interchange fees help fund fraud detection and prevention and full refunds in the event of fraud.
The Commerce Commission accepts that but says fee structures are overly complex and varying (”Some small businesses are paying less than 1.5% on average to accept Mastercard and Visa card payments while others are paying over 2.5%”, it says in its draft decision to cap fees) and can be more expensive than those charged in the EU, UK and Australia.
The commission has favoured educating retailers about surcharges on Paywave (Visa) or Paypass (Mastercard) in store or online. The regulator also sees its work to cap interchange fees higher up the card payments food chain filtering down.
Mastercard and Visa have both called for a ban on surcharges.
Reduced access to credit for consumers and small businesses would be an unintended side effect, Mastercard Australasia division president Richard Wormald said.
“Interchange is paid from the merchant’s bank to the cardholder’s bank to compensate for the value provided and risks of providing immediate settlement of credit. With the proposal to set interchange at 20 basis points [see table below] for both debit and credit, issuers would no longer be compensated for the risk of providing credit, which will likely have an impact on access to credit for less-affluent consumers and small businesses.
“It is used to compensate the consumer’s bank for taking credit risk, wearing credit losses, providing the operations of the card and so on. And so it’s not a fee that we benefit from at all. It’s a balancing mechanism across the network,” he said.
ABOVE: The Commerce Commission draft decision on interchange rates – paid by a store’s card acquirer (usually its bank) to your card issuer (usually your bank) for each transaction on Visa and Mastercard’s networks – are the largest component of the fees paid by businesses to accept those cards.
Wormald also saw “reducing competition and innovation, while entrenching the larger incumbents. Many fintechs rely on interchange as a revenue stream. Additional downward pressure will mean these players are making even less on every transaction and will make it near impossible to compete with the big banks that can cross-subsidise losses with other sources of business – for example, mortgages”.
He predicted an “impact on tourism spending through a stealth tourist tax. By also proposing regulation of cross-border payments, foreign banks who have no say in this consultation will be adversely impacted with less or no ability to cover the risks of providing cross-border payments, which are higher risk and more complicated”.
“Other markets where this has occurred have an increase in transaction declines because the foreign bank doesn’t want to take the risk – forcing tourists to get cash or merchants to lose the sale,” he said.
Fees for international cards were higher because of the added complexity and greater fraud risk, Wormald said.
“We think the way out of this is actually to ban surcharging, which is likely where Australia will go,” Wormald said (see more on Australia below).
He also pointed to a “collaborative approach” in Canada where “the central bank worked with us with Visa and the local domestic network called Interac, and we voluntarily entered into undertakings to create specific small business rates together. They were co-ordinated and implemented at the same time to ensure the savings were passed on to the end merchants.”
“I am pleased that the Commerce Commission is making progress on its plans to lower and simplify the fees that businesses pay for offering Visa and Mastercard card payment options,” said Scott Simpson, who took over the Commerce and Consumer Affairs portfolio after Andrew Bayly resigned as a minister on February 26.
“Once the commission’s final decision is in place, businesses will pay lower, more consistent fees – which should mean lower surcharges for consumers. This will also make it easier for consumers to spot and question excessive surcharging.
“This work is expected to save about $260 million a year in card fees. Our Government is absolutely focused on driving down the cost of living for Kiwis. Having lower fees at the checkout is a big component of this.
“I look forward to the commission putting in place a fulsome solution to regulate surcharges as soon as practicable.”
A Commerce Commission spokeswoman told the Herald this week: “As part of our consultation on interchange fees we also sought views on surcharging. Submissions on that close tomorrow (March 18). We are aware there are a range of views on surcharging, including those expressed by Consumer NZ; we will take those into consideration when progressing work to address excessive surcharging.”
In its draft decision, the Commerce Commission says: “It seems likely that some form of surcharging regulation will be needed, given the extent of excessive surcharging currently, even if this draft decision is implemented. We expect to consult on surcharging regulation in the New Year.
“We are considering options such as a maximum surcharge rate, requirements to display average merchant service fees and/or requiring terminal providers to sight evidence of average merchant service fees prior to uploading a surcharge rate to a terminal.”
The Retail Payment System Act 2022 says merchants should charge “no more than reasonable fees for the supply of payments services, reflective of the cost and value of using the payment network”.
So who decides whether 1%, 2%, 2.5% or 5% is scrawled on the sticker adorning a contactless payment machine?
“Of those that surcharge, 79% set their own surcharge rate, while 18% allow their terminal provider to set the rate. The remaining 3% indicated ‘other’, possibly because they did not know,” Retail NZ said in a submission to the Commerce Commission.
The complexity of fee structures was an issue for its members.
“In establishing the level of surcharge, the primary method used involves the merchant calculating a rate that covers their costs (47%). The second most common approach to setting a rate or rates is to take advice from the terminal provider (21%), while 18% rely on information from their bank statement. About 5% of merchants look at what other retailers are charging,” Retail NZ said.
While retailers can often set their own surcharge, the Commerce Commission told the Herald that one major eftpos terminal provider had limited the amount its customers could surcharge to 5%.
Across the Tasman, the Reserve Bank of Australia (RBA) is considering restrictions on credit card fees, and Labor has promised to ban surcharges by early 2026 if re-elected (a federal election is scheduled for May).
The possible regulation is one of the backdrops to possible industry consolidation.
Auckland-based, dual-listed Smartpay – which has been asked for comment on the impact of possible regulation – operates about 40,000 Eftpos machines across Australia and New Zealand and is the largest independently owned operator on this side of the Tasman.
On Monday, Smartpay revealed it was the subject of two non-binding takeover offers: one at $1 per share from Sydney-based Tyro, which operates about 70,000 payment terminals, the other from an unnamed party.
On the day of the RBA fees investigation announcement – October 14 – Smartpay shares fell 14% from $1 to 86¢. Tyro was down 15%. Both stocks have been under pressure since.
Smartpay shares jumped from 63¢ to 85¢ in Monday trading for a market cap of $206m after the offer was announced.
The firm said it had allowed both non-binding offers to go to due diligence, which could lead to a binding offer.
Smartpay made a pre-tax profit of $0.7m in the first half (from a year-ago $3.8m net loss) on revenue that increased 8% to $50.8m.
The Commerce Commission put its case for caps in an online document called Retail Payment System: Interchange fee regulation for Mastercard and Visa Networks - Draft Decision and Reasons Paper, released on December 18.
The deadline for industry and public feedback on the Commerce Commission’s draft decision is 5pm today. Consumer NZ has created an online form for speedy submissions.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
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