Credit-card fees under scrutiny

By PAM GRAHAM

Credit-card fees and the arrangements that set them are under investigation in New Zealand after they were found wanting in Australia.

The Commerce Commission has started a probe into cards under part two of the Commerce Act covering agreements that lessen competition, exclude competitors or fix prices.

"We are basically looking at any issues arising from arrangements between banks regarding credit cards, including interchange fees," said Jackie Maitland, the commission's communication manager.

"We commenced our investigation based on our own monitoring of the industry," she said. There was no deadline for the probe.

Progressive Enterprises managing director Ted van Arkel, who in May threatened to stop accepting Visa cards if fee rises were implemented, said the review was welcome. Rival Foodstuffs also made a stand on the issue.

Industry participants declined to comment yesterday beyond saying they were aware of the investigation and it was early days.

Australian bank regulators have moved to cut by 40 per cent the fees banks charge each other for handling card payments, known as interchange fees, opened the card network to non-financial institutions and allowed merchants to pass on charges levied on them.

Banks are estimated to risk losing A$480 million ($560 million) of revenue from the change. Visa International has contested Reserve Bank of Australia's power over the payment system in the Federal Court, with a judgment due by October.

The New Zealand review is by the competition regulator, which has the power to write a letter, issue a formal warning, reach a settlement or seek a cease and desist order through the court. A breach of such an order is liable to a penalty of $500,000.

Analysts say Australia and New Zealand may have the same banks but the payment, legal and regulation systems are different, as is usage of credit cards compared with Eftpos. New Zealanders use Eftpos more often than Australians. Most credit card systems involve four parties: a card issuer, such as Visa, banks, merchants and the cardholder.

The card issuer can charge a fee only to cardholders, while interchange fees are used to pass back to the issuer some of what banks charge merchants. Only banks or financial institutions can join the system.

Card issuers argue that the structure keeps fees down to cardholders, allowing issuers to compete with debit card systems and other payment mechanisms.