Higher prices for all as retailers hit by credit and debit card costs: Retail NZ

Thursday, 19 April 2018

Mastercard and Visa 'scheme' credit and debit cards are convenient, and can be used to make online transactions, but they are costing retailers a lot of money.

New Zealand shoppers are getting stung because it costs retailers 'too much' to accept Visa and Mastercard payments.

Kiwi merchants paid more to accept credit and contactless debit card transactions than merchants in Australia and the UK, said Retail NZ, which represents over 5000 retailers.

That was resulting in higher prices for consumers, said Retail NZ's Greg Harford. The findings were released in Retail NZ's 2018 Payments Survey on Thursday.

'Most retailers do not apply a surcharge for credit card or contactless debit card use, so the costs of high bank charges for accepting credit and contactless debit cards tend to be spread across all consumers,' said Harford.

* Merchant anger rising at growing cost of 'interchange'**

'The survey shows that, on a weighted-average basis, New Zealand merchants pay twice as much as merchants in Australia, and between three and six times more than in the UK,' Harford said.

Mastercard's Ruth Riviere said the 'scheme' payments systems, as the Mastercard and Visa payments systems were known, provided good value to merchants, reduced the costly handling of cash, allowed e-commerce to thrive, and boosted sales.

But Harford said: 'The disparity in fee levels is growing as international regulators move to address the inherent unfairness in the fee levels being changed by banks and credit card schemes,' Harford said.

'In New Zealand, on a weighted average basis, merchants pay 1.6 per cent for accepting credit cards and 1.2 per cent for accepting contactless debit cards. This compares to 0.5 per cent and 0.2 per cent in the UK and 0.8 per cent and 0.6 per cent in Australia.'

Greg Harford of Retail NZ says it may be time for New Zealand to follow the UK and Australia and regulate credit and debit card interchange fees.

'Retail NZ continues to hold the view that additional transparency and regulation is possibly required, in order to bring New Zealand into line with comparable overseas jurisdictions,' he said.

But Riviere said in countries where costs of scheme credit and debit card 'interchange' fees were regulated, like the UK and Australia, there had been 'unintended consequences', such as banks lifting other fees to compensate.

'What we have seen happen, especially on the consumer side, is an increase in the amount of consumers pay for banking products,' Riviere said.

Retail NZ first raised concerns in 2015 over the high cost of 'interchange', which is a fee charged each time a merchant accepts a payment.

Interchange is only part of the cost of a merchant accepting a scheme payment, and it is bundled up with other charges in what is commonly referred to 'merchant service fees'.

Retailers' service fee concerns lead to political pressure, and Mastercard and Visa have now begun publishing interchange fees in a more transparent way, Commerce Minister Kris Faafoi was told in a letter from Payments NZ on Tuesday.

The new transparency coincided with Mastercard and Visa recently moving to lower some of their interchange fees.

The cost of interchange varies.

Large retailers like supermarkets pay very little, while smaller businesses pay more, hampering their ability to compete.

And the cost to retailers to accept different kinds of cards varies too.

It's more costly for a retailer to accept a Platinum credit card, for example, than an standard credit card, and higher interchange fees for platinum card payments helps the banks fund their cards' generous rewards schemes. But that meant shoppers with ordinary cards were unwittingly helping pay for those rewards through higher retail prices.

'Because retailers tend to incorporate bank charges in overall pricing, there is effectively an inequitable wealth transfer from less well-off Kiwis to better off New Zealanders,' Harford said.

Many people still use eftpos, but Mastercard and Visa debit and credit cards earn banks more, and so have been heavily marketed.

Using a Mastercard or Visa scheme debit card was 'essentially' free when it was entered into a payments terminal, and a PIN entered, said Harford.

But there had been a big push to get shoppers to use quicker, but higher interchange 'contactless' transactions by tapping their card against a contactless payments terminal. That was driving price inflation, Retail NZ believed.

'There is an increasing consumer demand for contactless cards and technology, and this has the effect of imposing substantial additional costs on merchants and consumers,' Harford said.

'High fee levels are costing the whole economy,' Harford said.