“If our draft decision is implemented, we’d expect to see consumers benefit from lower surcharges of around 0.7% to 1%, or through prices of goods and services that reflect the lower fees. We’ll be doing more work next year to determine whether, and to what extent, regulation of surcharges is necessary,” ComCom chairman John Small said.

Actual savings with contactless credit card payments at shop tills, or credit card payments online, will depend on how much of the savings retailers pass on to their customers.

“The average merchant service fee for small businesses is around 1.2% to 1.5%. This means costs for some businesses will be more, and for other businesses will be less,” Small said.

“The Commission expects any surcharges not to exceed costs, and encourages businesses paying more than 1.5% to check if they can get a better deal from their existing or new payment provider.”

Visa: $273m saved in fraud detection

In submissions to the July discussion paper, Visa said fees had funded benefits including fraud detection systems that prevented $273m in loss over the previous year.

Fees also paid for the firm’s international networks. Visa also said developments such as digital currency (which the Reserve Bank sees as a possibility for 2030) and open banking world provide competition as they opened up alternative payment options.

Fees also covered Visa (and Mastercard) schemes to repay customers in full in the event of fraud — an element picked up on by the New Zealand Initiative in its submission opposing regulation.

“The Commission understates the value of ancillary services provided by card schemes, particularly the value of insurance on transactions,” the group said.

Mastercard: Regulate retailers

Mastercard NZ country manager Ruth Riviere warned in her company’s submission that “further interchange fee regulation may result in unintended consequences”.

Citing a Boston Consulting Group research, Riviere said “All payments have costs attached … and the end-to-end cost for a merchant to accept a card payment (2.1%) is lower than cash (3.6%) and Buy Now Pay Later (4.9%).”

If costs couldn’t be recovered through surcharges, they would be recovered in other ways, Riviere said.

In Mastercard’s view, ComCom should clamp down on retailers who hit customers with excessive fees for payments by credit card.

“Excessive surcharging needs to be urgently addressed through regulation and enforcement. The most immediate savings to consumers can be made by enforcing surcharges by merchants so that they do not exceed the direct cost of acceptance,” Riviere said.

Retail NZ strode onto similar territory, if from a different direction.

“We support the proposal for the Commerce Commission to set much lower fee caps for the interchange component of the designated Mastercard and Visa networks,” the group said.

“However, interchange fees account for a little over half the total cost of Merchant Service Fees (MSF) and retailers have legitimate concerns about the cost of other components.”

ComCom has been sending letters to retailers who hit customers with high credit card surcharges — but one of the key thrusts of its discussion paper is the likelihood retailers will wipe surcharges if interchange fees are regulated to less than 1%.

Most retailers set their own rate

Who decides whether 1%, 2%, 2.5% or 5% is scrawled on the sticker adorning a contactless payment machine?

“Of those that surcharge, 79% set their own surcharge rate, while 18% allow their terminal provider to set the rate. The remaining 3% indicated ‘other’ possibly because they did not know,” Retail NZ said in its submission.

The complexity of fee structures was an issue for its members.

“In establishing the level of surcharge, the primary method used involves the merchant calculating a rate that covers their costs (47%). The second most common approach to setting a rate or rates is to take advice from the terminal provider (21%), while 18% rely on information from their bank statement. About 5% of merchants look at what other retailers are charging,” Retail NZ said.

Too complex

The regulator previously said many smaller merchants were confused by complex layers of fees beyond payment systems.

Submissions revealed larger firms were also frustrated by the complexity.

“The inconsistency of charges and fees from merchants, banks and by card type creates significant complexities for retailers, as does whether the customer swipes or inserts their card,” Super Liquor said.

It added: “The dollar value of any transaction does not affect the interchange itself, yet a 1% surcharge is considerably different between a $10 transaction and a $100 transaction. This is anomalous.”

One NZ (which noted it “does not currently charge a convenience fee for in-person card payments”) submitted: “There is a lot of complexity associated with the merchant service fee structure. This creates significant challenges for retailers to determine how to surcharge to ensure that this is properly reflective of the costs of card transactions as a payment method.”

There were many indirect business costs involved that currently fell outside ComCom’s calculation of a “reasonable” surcharge.

Visa, Mastercard complain BNPL gets a free pass

Visa called for a “level playing field” noting the rise of buy now, pay later (BNPL). Mastercard used the same phrase, saying, “While Amex and BNPL are outside regulation, competition is asymmetric.”

Payments processor Stripe said in its submission: “Gen Z are using BNPLs in every aspect of their spending: online shopping, utility bills, even car maintenance, all as an easy way to track spending without traditional cards. For merchants, this means that selling to under-35s is more straightforward if BNPL is offered given its status as a frequently preferred payment method.”

Across the Tasman, regulators have hit BNPL.

ComCom’s July consultation paper said the lack of security token portability led to inefficiencies and could increase costs.

Fintech firm Revolut said since the initial interchange fee caps in 2022 it had seen only “limited change to surcharging”.

Revolut said many merchants in New Zealand were on bundled rates — that is, one averaged-out price — while unbundled pricing, or paying one rate for more expensive international credit cards and another for cheaper domestic ones was the norm in Europe and North America.

The NZ Initiative said ComCom should take more heed of the fact customers could choose fee-free Eftpos payments.

Payments network operator Worldline said lowering credit card fees could remove incentives for innovating with Eftpos. The platform has been moribund in its physical card form for years, but there has recently been increasing update of Eftpos online.

Regulation so far

The Retail Payment System Act 2022 put a 0.8% ceiling on the fees the issuer of your card (usually your bank) can change a store’s acquirer (usually its bank).

ComCom said the move saved businesses an estimated $105m in its first year, which it encouraged stores to pass on to customers.

While it could not say how much of the initial savings had been passed on, the regulator could point to the fact most retailers at least now offered contactless payment as an option.

But Consumer NZ campaigns manager Jessica Walker told the Herald in May that, despite the new law, “the charges in some places are overwhelmingly high”.

ComCom’s goal is a 1.5% to 2% surcharge for domestic credit card contactless or online payments (or, ideally, a retailer absorbing the cost, as with the major supermarket chains).

But Consumer said many retailers still charged 2.5, 3 or even 5% – while some charged a flat fee that could equate to a much higher percentage of a purchase.

The Retail Payment System Act 2022 act also has provision for ComCom to recommend tighter direct regulation by targeting Visa and Mastercard fees — as it has in its draft proposal.

Among their other arguments, the credit card firms say it’;s still too early to gauge the impact of the 2022 law change.

The Commission is seeking feedback on this draft decision by February 18.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.