Mastercard joins Visa, will allow new card fee

Mastercard will let merchants surcharge customers when they use their cards to make purchases under a settlement announced today.

The Commerce Commission today settled the issue of credit card interchange fees with Mastercard following a similar settlement with Visa earlier this month.

The commission said that the agreement with Mastercard was substantially the same as the settlement with Visa.

Under the agreement merchants will no longer be prevented from applying surcharges to payments made on credit cards.

Any surcharges will be disclosed to cardholders at the time of sale and bear a reasonable relationship to the merchants' costs of accepting Mastercard products.

Mastercard said New Zealand consumers could be confident that they could continue to use their Mastercard cards wherever they see the Mastercard logo displayed.

Mastercard would set maximum interchange rates for New Zealand transactions, and post them on its website. Issuers would be permitted to set their own interchange fees up to the maximum rates.

Issuers and acquirers in New Zealand would continue to be able to bilaterally negotiate interchange rates that apply to New Zealand domestic transactions, although in the future these would be subject to the maximums set by Mastercard.

"Non-financial institutions will be able to apply to Mastercard to issue credit cards or offer merchant services, subject to certain requirements, such as the ability to manage risk, operational readiness, and capital strength," Mastercard said.

In agreeing to this settlement, Mastercard did not admit any wrongdoing, and will pay no penalties.

The background to the issue is that each time a Visa or Mastercard cardholder makes a purchase, the retailer pays a fee to their own bank as part of the payment authorisation process. That fee is comprised mainly of the interchange fee, which is paid to the cardholder's bank.

The retailer was previously not allowed to recover the fee from the cardholder and therefore all customers paid a cost in higher prices regardless of how they pay.

In 2003, the Reserve Bank of Australia moved to regulate the level of interchange fees, reducing the fees over time from 0.95 per cent of transaction value to less than 0.5 per cent.

Public and private competition enforcement actions have also been brought in respect of interchange fee arrangements in other jurisdictions, including the US and the UK.

- NZPA