More people are using contactless payment. Photo / file
After a surge of retailers signing up to offer contactless payment during lockdown some are now pulling the plug as the banks bring back fees.
The major banks temporarily cut contactless debit card fees to small business customers in late March amid pressure from technology entrepreneurs worried the high cost of providing contactless payments was putting merchants off using it.
Contactless technology allows people to pay by waving their card over the terminal or by using their smartphone or watch, and means consumers don't have to touch a keypad thereby avoiding exposure to germs including coronavirus.
The limit for using contactless card payments without having to enter a pin was also temporarily extended from $80 to $200 - an extension that remains in place for now.
But since the end of June banks have been progressively pulling back. ANZ and ASB were the first to stop offering the fee waiver, while BNZ's ended on July 31 and Westpac will stop its waiver from September 20.
The banks have lowered the merchant fees after Visa and Mastercard both dropped their interchange fees but for many retailers who signed up recently they will now be paying fees on contactless debit transactions for the first time.
Greg Harford, Retail New Zealand chief executive, says some merchants are certainly switching off contactless payments but it is instead encouraging merchants to talk to their bank about the price they are paying.
"There are a lot of retailers who are on pricing plans based on credit card transactions, and these make it very costly to process contactless debit transactions. Retail NZ recommends that retailers should be on an unbundled rate plan.
"Overall, we think that merchants should be paying around no more than 0.6 per cent for contactless debit transactions – and if retailers are paying more than that, they should talk to their bank to understand why."
Harford said credit card transactions were now cheaper for retailers if the customer taps the card instead of inserting it.
"So while there is a cost for contactless debit, retailers should be paying less for credit if they encourage their customers to go contactless."
Banks and companies like Visa and Mastercard were already under pressure to lower contactless payment fees even before Covid as fees in New Zealand have typically been higher than other countries where they have been regulated.
Research by Retail New Zealand in 2018 found the average merchant fee in New Zealand was 1.6 per cent of the value of a transaction for credit cards - double the 0.8 per cent charged in Australia.
For contactless debit cards, the fee averaged 1.2 per cent in New Zealand and 0.6 per cent in Australia - where Paywave is nearly the norm.
Ruth Riviere, Country Manager for Mastercard New Zealand & Pacific Islands, said it had seen an incredible rise in contactless payment use since Covid.
Its research showed 35 per cent of Kiwis had increased their usage of contactless payments since the pandemic and 66 per cent were keen to continue using it.
Riviere said the biggest change was those in using a smartphone or wearable technology to pay with 31 per cent doing that now, compared to 6 per cent in January last year, meaning they didn't use their card at all.
"From a retailer's points of view they are going to see more and more people who don't have any other way to pay."
Ben Kelleher, managing director of retail and business banking at ANZ New Zealand, said it went from having an average of 350 merchants signing up per month in January and February to 1112 in March and 2235 in April.
"In the first four days of May nearly double the number of retailers signed up for contactless than in the whole of January or February."
Before Covid, Kelleher said the split of ANZ merchant-processed debit transactions in a card present (face-to-face) environment between contactless and Eftpos was 20 per cent contactless and 80 per cent Eftpos. Now it was 30/70.
Eftpos is free for merchants to use and why many small retailers have no Paywave signs on their machines.
An ANZ spokesman said it had seen a small number of merchants who have switched off after the fee waiver was dropped.
"But it's too early to identify any trends."
On August 1 ANZ dropped its debit card contactless fee from 0.95 per cent to a maximum 0.7 per cent of the transaction value.
BNZ also dropped its contactless debit card rate to a cap of 0.7 per cent for small and medium-sized business customers from August 1.
"During lockdown we saw more merchants switch on contactless payments, but as the fee waiver period has just ended and there's now a new pricing model in place, it's too early to tell what the trend is," a spokesman for the bank said.
Westpac New Zealand will switch its business customers on to a new pricing plan from September 1 with most moved on to a new "blended" merchant service fee, which will provide separated pricing depending on the transaction type.
Merchants on this pricing structure will be charged a new maximum rate of 0.60 per cent on contactless debit transactions, and contactless credit transactions will cost less than standard credit transactions.
Westpac customers still on the fee waiver will switch over to the new pricing plan on September 21.
A Westpac NZ spokesman said it was confident its fee reductions would encourage retailers to continue enabling contactless payments.
ASB executive general manager corporate banking Nigel Annett said since Covid-19 emerged both Visa and Mastercard had reduced the maximum interchange rates for debit contactless transactions.
"The majority of ASB's merchants will immediately benefit from these reductions through interchange plus pricing."
The bank was also looking into introducing a capped debit contactless rate for SMEs.
Mastercard's Riviere said there was still a question mark as to how and when that limit would change.
"Mastercard is working with its partners to see where that will lead."
She said the health rationale - Covid-19 - had not been resolved. While New Zealand did not have community transmission it was still widespread overseas.
Banks had previously been reluctant to have a higher limit on cards due to the increase in their fraud exposure.
ASB's Annett said while it hadn't seen increased instances of fraud, the average value of fraud had increased with the limit change.
"This has been offset somewhat by increasing number of customers adopting the greater security of the ASB mobile pays solutions on their mobiles."
Spokesmen for Westpac, BNZ and ANZ said they had not seen any increase in fraud since raising the contactless transaction limit to $200.
But the ANZ spokesman said it continued to monitor it.
Riviere said if a contactless card was stolen and used fraudulently consumers did not have any liability.
Reserve Bank says leaving banks to their own devices hasn't worked.