Shoppers face extra cost for card use

Using credit cards may cost extra, now that Visa has settled a price-fixing case with the Commerce Commission.

Consumers using credit cards could soon face higher costs after a Commerce Commission ruling gave merchants the right to charge levies.

Credit card giant Visa has settled out of court on claims of price-fixing made by the commission, and has agreed to improve competition and disclosure.

As a result merchants will no longer be prevented from applying surcharges to payments made by credit cards or by specific types of cards.

When the change takes effect next April, merchants will also be able to encourage customers to pay by other means.

The commission said there was no limit to the surcharges merchants - usually retailers or service providers - could apply. Shoppers would have to decide whether a surcharge was acceptable.

Court action is also being taken against banks and other credit card companies.

Retailers Association chief executive John Albertson said the association would not know the full effect of the decision until all cases had been decided.

It was too early to say whether any new costs might be passed on to the consumer, but suggested that, in a difficult economic climate, any increased fees would put pressure on the retailers to make up that money.

"One would hope that the interchange fees will come down, as they are significantly higher than in Australia," he said.

The commission will drop the High Court action against Visa in which it alleged the company agreed with all parties to fix the fee paid by merchants on transactions, known as the interchange fee. Merchants paid up to 1.8 per cent of the value of a purchase in an interchange fee.

Visa will contribute $2.6 million toward the commission's costs in pursuing improved competition.

Credit card issuers will now be able to individually set the interchange rates that will apply to transactions using their credit cards, subject to maximum rates determined by Visa. These rates will be made publicly available in September.

Visa's director of corporate affairs, Jeremy Griffiths, said the card company was content that the issue was resolved, but it believed surcharges were harmful to consumers.

Commission chairman Mark Berry welcomed Visa's initiative in approaching the commission and said the agreed changes would improve competition between companies that provide credit card services to retailers in New Zealand.

The commission also has claims against ANZ National Bank, BNZ, Westpac New Zealand, ASB Bank, Kiwibank and TSB Bank in relation to interchange fees in the Visa scheme, which continue, as does its claim against those banks, MasterCard and The Warehouse Financial Services in relation to the MasterCard rules.

These are expected to be heard in the High Court at Auckland in October.

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 is not allowed to recover the fee from the cardholder, and therefore all customers bear 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.

- ADDITIONAL REPORTING: NZPA