The Commerce Commission has issued a draft decision on slashing card fees paid by businesses that it says could save Kiwis more than $260 million a year if it went ahead.
The decision would reduce the fees paid by businesses for accepting Visa and Mastercard payments.
“These fees are passed on to consumers through the cost of goods and services, and surcharges,” the Commerce Commission said.
The commission would set the expectation that savings businesses make under the decision, if it went ahead, would be passed on to shoppers.
New Zealand consumers spend about $95 billion each year using Visa and Mastercard, the commission said — and businesses incur about $1 billion in fees each year to provide those two payment options, it added.
“We’re proposing a reduction of around $260 million a year to the largest component of the fees charged to New Zealand businesses to receive Visa and Mastercard payments. We’re also setting the clear expectation that payment providers and businesses should pass these savings on to customers,” the commission’s chairperson John Small said.
“This work is the next step to further reduce, and simplify, payment costs for New Zealand businesses, and to save merchants and consumers a considerable amount of money.”
Difficulty understanding fees
The commission explained that, when someone uses a Mastercard or Visa credit card or makes a contactless payment (for example, Paywave), the business they’re paying is charged a “merchant service fee”. The business will often seek to recover that fee through surcharges or higher retail prices.
“Some businesses, whether due to finding it difficult to understand the fees they are being charged or because they seek to make a margin on their cost of payments, set their surcharges higher than the actual merchant services fees,” the commission said.
So, simplifying the fees is part of the draft decision’s focus, the commission said.
“We’ve been clear businesses should not be surcharging their customers more than the cost to them of accepting that payment,” Small said.
“Excessive surcharging is not easy to spot. Different businesses pay different fees and the Visa and Mastercard fees are themselves quite complex and variable.”
Aim of 0.7% to 1.0% surcharges
Small said that, if the decision went ahead, the commission would expect consumers to “benefit from lower surcharges of around 0.7% to 1.0%” of from lower prices.
At the moment, the average merchant service fee for small businesses is around 1.2% to 1.5%, the commission said.
“We’ll be doing more work next year to determine whether, and to what extent, regulation of surcharges is necessary.”
Feedback on the proposal is open until February 18. The full paper is available here, while businesses can submit here and consumers can submit here.
Retail NZ said it “looks forward to responding”, adding that “retail payments are a contentious area for retail businesses”.
“We have called for changes in the system, to make it easier for retailers to understand and enable them to provide better customer experiences,” said Retail NZ chief executive Carolyn Young. “We will be working with Retail NZ members to respond appropriately to today’s draft decision.”
Government reaction
The Government is “relentlessly focused” on reducing the cost of living, Commerce and Consumer Affairs Minister Andrew Bayly said. He welcomed the draft decision.
“Credit and debit card fees are a pain for consumers. Nobody appreciates being hit by a big surcharge or payWave fee at the checkout.
“It’s hard for Kiwis to know what fees are reasonable and fair, and even a few cents on a transaction can add up over time,” he said.
“That’s why I am delighted the Commission has today released a draft decision to reduce and standardise interchange fees, which are the fees that business incur to accept Visa and Mastercard card payments.
“Once implemented, Kiwis can expect to pay lower and more consistent fees at the checkout.”
He said it’s an “important win” for both businesses and consumers.
“Right now, retailers pay on average 1.5% to process a card transaction. The Commission’s proposal reduces this to around 0.7%.
“The Retail Payment System Act stipulates that businesses must only charge customers the cost of processing a payment, meaning businesses are obligated to pass this saving on to consumers,” Bayly added.
