Why do some stores charge a 2, 3 or even 5 per cent surcharge when you tap your card to pay? Some even slap you with a flat fee of 50c or up to $5.
That’s despite new rules introduced in 2022. Here’s what could be done to tighten things up.

Despite recent reforms, Consumer NZ says contactless payment fees are still a “surcharging swindle”.

“The charges in some places are overwhelmingly high,” Consumer NZ campaigns manager Jessica Walker says.

Her organisation has fielded more than 80 complaints about payment fees since the Retail Payment System Act, designed to lower fees, was passed in November 2022.

The Commerce Commission told the Herald it had fielded 96 complaints over the same period.

Walker thinks tens of millions of dollars in promised savings have yet to be passed on to shoppers.

Commerce and Consumer Affairs Minister Andrew Bayly told the Herald: “I am aware of the issue with overcharging contactless payment fees. It is wrong and it’s something I am encouraging the Commerce Commission to pursue with their full might.”

How much is too much?

The law says contactless payment fees should reflect reasonable costs to a retailer, with no gravy on top.

The Commerce Commission does not give dollar figures for surcharges. But given caps on the fees providers pay each other higher up the food chain, it has a good idea of what people should pay when they tap their card or pay for something online using a credit or debit card.

Its rules for appropriate fees are:

Reality is messier because some retailers have older terminals that allow them to set only one blended fee to cover debit and credit cards, while others have parked the percentage guidelines in favour of a flat fee.

Still, there’s a general guideline. For those paying by credit card, “We consider that any surcharge above 2 per cent is hard to justify,” Commerce Commission acting market regulation general manager Simon Thomson told the Herald.

Consumer says the average surcharge is 2.5 per cent.

Flat fees push well beyond 2 per cent

Consumer NZ called out a dentist in Ponsonby with a flat $5 surcharge – meaning one customer with an $80 dental bill effectively paid 6.25 per cent more. A flat surcharge at a Wellington cafe meant a customer paid a 26 per cent surcharge. Wellington Combined Taxis drew flak for a $3.80 flat fee that meant a passenger faced a 26 per cent fee for paying an $11 fare by card.

In February, Combined switched to a $2 “service fee” for all payments, be they cash or card. A spokesman confirmed the $2 charge was still in use but pointed out that, while the company had been highlighted by a watchdog, its fee was lower than that of rival Kiwi Cabs, with a $3 “electronic transaction fee”, and Capital Taxis at $2.30.

Small retailers can simply be confused about their options. The Commerce Commission has expressed frustration that, in some cases, retailers ask for information about fees via snail mail.

But the regulator has also tangled with the likes of telcos and airlines about percentage payment fees.

And some large organisations maintain flat fees that, depending on the size of the transaction, can hit the consumer with a surcharge well above 2 per cent.

Council-controlled Auckland Transport charges a flat 50c per contactless transaction. If you pay its $4 rate for an hour of parking at AT’s Upper Queen St car park, that works out to a 25 per cent surcharge. If you pay $10 for a couple of hours’ parking while you shop (the second hour costs $6), the surcharge works out to 8 per cent.

“The parking fee surcharge has been in place since 2010, just for machines,” an AT spokeswoman said. “The 50c charge covers several additional costs that AT incurs for these machines. Primarily, it is to cover the merchant fees, ongoing cost of keeping machines safe and compliant and ongoing cost of repairing vandalised machines. The cost is also for future-proofing them to keep up with constant changes in the marketplace.”

What if a retailer breaks the ComCom’s rules around fees?

There are no penalties for a corner dairy pushing its luck with, say, a 3 per cent credit card surcharge or a chunky flat fee that appears to go beyond recovering reasonable payment costs – or a retailer at a concert or sports event that offers only a contactless payment option, with a fee, and no fee-free payment option, such as eftpos or cash.

In most cases, there’s a polite conversation, with a hint of steel in the threat of bad publicity (if a retailer is being outright deceitful, for example by failing to inform a customer about its outsize fees ahead of payment, it could be prosecuted under the Fair Trading Act).

The Retail Payment System Act allows the regulator to set tougher rules and bare more teeth. But for now, it’s not taking that option.

“We have the ability to set a merchant surcharging standard under the Retail Payment System Act. But we are not at that stage yet as we have had success through our education and engagement approach to tackling excessive surcharging, as well as naming and shaming. We are not currently contemplating implementing this standard,” the Commerce Commission’s Simon Thomson says.

“We publicly highlighted sectors we considered were excessively surcharging and we have seen a reduction already. For example, we can confirm that Jetstar has changed its surcharging policy to create more transparency and One NZ has lowered its surcharge rate for most transactions to 1 per cent, down from 2 per cent.”

2degrees earlier reduced its surcharge from 1.75 per cent to 1 per cent (Spark charges 0.87 per cent).

And parking notwithstanding, the Commerce Commission says Auckland Council has reduced its weighted average surcharge for credit and contactless debit to 0.67 per cent from 1.75 per cent since the act was introduced, while Dunedin City Council has lowered it from 1.80 per cent to 1.35 per cent.

Bayly said it was up to the Commerce Commission whether it set a merchant surcharging standard, allowing stricter rules and more aggressive enforcement.

Two other paths to lower fees

New ways of paying could lead to lower fees: a “designation” provision in the Retail Payment System Act that would allow the Commerce and Consumer Affairs Minister to give the Commerce Commission the green light to introduce new rules to reshape the market, and the related area of open banking – or making it easier for third-party apps to get in on the payment action.

Designation

“We have been consulting on whether to recommend to Minister Bayly that the interbank payment network be designated,” Thomson says.

“This work aims to increase competition between the current payments methods available, and introduce greater innovation, which may result in lower costs in some instances.

“These new innovative methods have been seen overseas and include the use of QR codes and mobile applications to be able to easily make in-person bank transfers.

“These methods of payment tend to be lower-cost than the high-cost card-based payment methods of Visa, Mastercard and American Express.”

The ComCom has been consulting on designation since March and will send a recommendation to Bayly in the third quarter. Bayly will then have to decide if he agrees and, if he does, take the matter to Cabinet. There’s no set timetable.

Open banking

Bayly is keeping his powder dry on designation until he hears the ComCom’s recommendation.

But he’s already committed to open banking – or changing the law to make it easier for consumers and third-party apps to access banks’ data, or at least without workarounds such as that used by POLi, which requires you to share your bank logon and password. Dozens of fintech apps, including Akahu and Dolla, are active today but need full-blooded open banking standards to offer all the payment and fraudster-fighting payee-verification services they want to.

Bayly sees open banking allowing new payment options, which will put market pressure on the established players to lower their fees.

The process kicked off this week with the Consumer and Product Data Bill 2024 being introduced to Parliament.

“The problem is we don’t have a framework for consumer data sharing, which is what underpins open banking. Australia, Europe, UK, Canada, US, Brazil and others already have or are soon implementing data-sharing laws,” Bayly said. The same point was made by the ComCom market study of personal banking services earlier this year.

Bayly told the Herald that, once passed, the new law would first be applied to the banking sector to facilitate open banking (which, beyond its potential to help with payment fees, should also make it easier to switch banks or get a loan). Bayly references the “10-minute mortgage” now offered by Westpac in Australia, which is possible because – if you choose to provide permission – the bank can examine all of your financial transactions within minutes, gaining an accurate picture of your pay and expenses without you having to collect paperwork.

“Open banking is a very high priority for me. It is something I am progressing at pace,” Bayly said.

The big banks have been working towards open banking through PaymentsNZ, which they collectively own. Measures have included creating PaymentsNZ’s API Council (the initials stand for application programming interface, or the key bit of tech for letting different software systems talk to each other).

‘NZ falling behind’ – Bayly

“I do think additional measures are required to support open banking’s adoption,” Bayly said. “Industry-led initiatives have been slow and New Zealand is falling behind the rest of the world with open banking.”

In February, Commerce Commission chairman John Small expressed a similar sentiment in an open letter to those involved in the retail payments system, calling for “banks to pick up the pace on payment options. There are numerous examples of this working successfully overseas with the use of QR codes and mobile applications that facilitate new in-person payments”.

PaymentsNZ rejected the “too slow” criticism this week.

“Our focus has always been on putting the right foundations in place first and foremost,” a spokesman told the Herald.

“That means co-designing a modern open banking framework with standardised protocols that others can use. It has taken longer than some of us anticipated but we’re now in a position where we’re delivering a high-quality platform that enables real innovation.

“Our API Centre has developed and implemented multiple open banking standards which are in active use by banks and third parties such as fintechs. Our payment initiation standard will go live with Aotearoa’s four largest banks on May 30, covering 80 per cent of banking customers, with our account information standard to follow in November. All of this work has been industry-driven through collaboration with banks and standards users.”

Kiwibank lagging, Worldline says

The major banks sold Paymark – the original eftpos operator – to French multinational Worldline in 2021.

Worldline operates most of the payment network but the bank-owned Payments NZ controls many of the rules. In an April submission to the Commerce Commission, Worldline said it “faces challenges and concerns with open banking, particularly around the delays and lack of support from banks, especially Kiwibank, in implementing and promoting open banking products, such as online eftpos”.

A Kiwibank spokesman confirmed it would meet the two open banking benchmarks in May and November 2026, two years after ANZ, ASB, BNZ and Westpac.

He added: “Kiwibank welcomes the opportunities and innovation that open banking may bring. The implementation plan adopts a staged approach to delivering open APIs, which reflects the orthodox approach to implementing open banking taken overseas..”

What a new payment option could look like

Worldline head of public affairs Julia Nicol told the Herald that, while the no-fee online eftpos had now been rolled out on the online stores of major brands such as PB Tech, Skinny and Mighty Ape, it had taken years to get the big banks on board. It’s a no-fuss online payment option. You click online eftpos at a website’s checkout, then approve a pop-up message in your bank’s app.

Nicol said she still saw a key role for MasterCard and Visa. But on the debit side, Payments NZ had not invested or innovated in eftpos.

Magstripe-equipped eftpos cards were a world-leading technology when launched in 1989. But with the banks not receiving any fees for their use (in fact, they pay a small fee themselves), there’s no incentive to innovate.

And eftpos cards are going out of fashion. Many, particularly younger people, prefer the convenience of a tap-and-go debit card. Some banks will now issue a debit card by default and give you an eftpos card only if you request one.

Nicol said open banking could fuel a rival for the no-fee eftpos system.

She doesn’t expect cards to change but sees eftpos digital tokens being added to the likes of Apple Pay and Google Pay – so you could tap and go for no fee or a low-fee, in-store eftpos payment using your phone or smartwatch. She’s even got a buzz phrase for it: softpos.

In-store wireless eftpos could also potentially be added to banks’ apps.

Digitial nirvana?

Nicol is also eyeing the Reserve Bank’s possible introduction of a digital currency, which she sees as the most frictionless, low or no-fee path.

But assuming the RBNZ did go down that path, the best-case scenario would be 2030, by the central bank’s own reckoning (and Nicol thinks it would be impractical to attempt to introduce digital cash alongside the folding kind any time sooner). Her fear is that eftpos could die-out well before 2030, leaving us with a couple of years dominated by higher-fee options.

May 30 deadline

The established players have an opportunity to regain the initiative, and we’ll find out shortly how well they’ve seized it.

The “big four” banks (ANZ, BNZ, Westpac, and ASB) have committed, under the API Centre’s Minimum Open Banking Implementation Plan, to have the API Centre’s standardised payment initiation API ready for use by May 30, and the standardised account information API ready by November 30. Kiwibank will take a further two years from each of these dates, for operational readiness.

That will give Bayly a clear picture of whether the threat of regulation has been enough to accelerate open banking, or whether he’ll have to start pulling regulatory levers.

Why do I now see ‘payWave’ nearly everywhere?

There has been one positive development already. Until recently, you just didn’t often see the option to tap a contactless credit or debit card – or smartphone or smartwatch with Apple Pay or Google Pay – on a payment terminal.

Even if it supported the tech, the “eftpos machine” at a dairy or other small retailer would inevitably feature a homemade “No payWave” sign (payment machines also support MasterCard’s PayPass, but Visa’s payWave has become the popular shorthand for contactless payment technology).

Even some larger retailers, such as Whitcoulls, disabled contactless payments.

Things started to change with the pandemic, when “No payWave” became a public health issue. People didn’t want to insert a card then enter a Pin.

Along with years-long rumblings about fees from retailers, shoppers and consumer advocates, it helped spur the Government to introduce the Retail Payment System Act, passed in May 2022 with its main provisions coming into force in November that year.

One of the act’s primary targets was interchange fees, or the amount paid by the issuer of your card (usually, your bank) to a store’s acquirer (usually its bank).

It’s one of three layers of fees in the contactless payment food chain (we’ll get to the others, hold on to your seats) but the Commerce Commission says it’s the one with the biggest effect on contactless payment uptake and any fee that a shopper pays at the counter (or an online checkout).

The act capped interchange fees at:

The Commerce Commission says the interchange fees charged by its acquirer are the largest component of merchant service fees (MSF) that a retailer pays to offer contactless payment.

The ComCom said last August that businesses could save an estimated $105 million each year – more than 40 per cent above the $74m predicted in May 2022. It encouraged merchants to pass on those savings.

So why am I being whacked with fees?

“No payWave” stickers were peeled off as the regulation of wholesale fees made it economic for many retailers to introduce contactless payment for the first time.

But they were replaced by a new breed of biro labels at stores introducing contactless payments: stickers informing customers of a surcharge.

The ComCom says there are valid reasons for charging up to 2 per cent, though it notes that some retailers, from the big supermarket chains to corner stores, have chosen to absorb the costs.

Although now capped, at the rates mentioned above, interchange fees are still the largest component of the merchant service fee which can be reasonably reflected at the till.

“The merchant service fee comprises the interchange fee, the switch fee, the scheme fee, and an acquirer margin. We consider this appropriate to recover through a surcharge,” Thomson said.

Scheme fees are charged by credit card companies. The switch fee is usually charged by Worldline or Verifone for sending the transaction data to the right place. The acquirer is usually the retailer’s bank.

You could also hear your local shop owner complaining about a cost of, say, $20 a month to rent their eftpos machine. But the ComCom says terminal lease costs, and any IT costs, are not part of the equation.

“The business may also have a relationship with a terminal provider to lease the terminal. We would not expect these fees or other costs relating to necessary infrastructure to be recovered through the payment surcharge,” Thomson said.

Some benefits in scheme fees

Officially at least, Visa and MasterCard’s scheme fees are an unknown country for the Commerce Commission.

Scheme fees could become a point of focus if contactless payment fees remain high, but the commission has also noted that there are benefits. Visa and MasterCard’s networks connect thousands of banks, allowing for international payments, and payments when you travel, or tourists who come here.

They also help fund the system where you can get a credit card charge reversed if, say, an online retailer fails to deliver goods.

And, crucially, scheme fees help buoy Visa and MasterCard policy to issue a refund if your card details are swiped and used for a fraudulent transaction (unless you’ve been negligent with your security, such as revealing your Pin). It’s been a bacon-saver for many Kiwis.

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.