Coronavirus: How do we still have No Paywave?
Monday, 6 April 2020
This story was originally published on Newsroom.co.nz and is republished with permission.
Suddenly, surfaces are scary.
Door handles, taps, light switches, lift buttons, eftpos machines. These days they aren't just useful inanimate objects we touch without a care in the world.
When shared with other people, they are potential Covid-19 virus-harbouring surfaces.
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Locked down in our home bubbles, we don't touch many public toilet taps, office doors and light switches, or CBD tower lift buttons.
But we still shop, at least for food and medicines. So we still use eftpos terminals.
And those 'please use paywave' signs in some shop windows make sense.
But those sometimes-grubby 'No Paywave' signs on eftpos machines in small retailers don't.
Ewww.
Of course, contactless stops being a virus-stopping mechanism if you spend over $80 - then you have to put your pin number in anyway. But still, fount-of-all-knowledge Ashley Bloomfield would surely be arguing less contact is better than more?
Last Friday, the Australia Payments Network increased the limit for contactless payments from A$100 (NZ$102 to A$200) to cut the amount of physical contact with payment terminals, starting with supermarkets.
High bank fees
Traditionally, small shop owners didn't want customers using paywave because of the fees banks charged them for contactless transactions. Some quirk of New Zealand banking means retailers here pay almost no bank fees if their customers stick their debit card into an eftpos slot and use the buttons. (That's not the case in other countries).
So then paywave arrived and banks started charging a fee. Small shops, which were often on small margins anyway, rebelled. They were used to no fees at all, and sometimes contactless fees worked out pretty steep.
Retailers Association CEO Greg Harford says he's heard anecdotally of small shops being charged 5 per cent on transactions in the past - on occasion up to 8 per cent.
That's come down - the average is 1.1 per cent now, he says, but the mistrust around paywave remains.
(For more on paywave, or the lack of it, check out Bernard Hickey's great Two Cents' Worth podcast and web story from October 2019: 'Banks on notice over paywave disfunction'.
Hickey argues New Zealand has fallen behind Australia and Britain in using contactless payments 'because our light-handed regulation means bank fees are two to three times higher'.
Retailers are revolting against the bank fees and the Government should look at regulating them, Hickey says in the article.
Covid-19: gamechanger - or not?
The outbreak of Covid-19, and the concerns around touching eftpos terminals, should have changed the game. Towards the end of March all the big banks announced they were waiving contactless fees on debit card transactions.
ANZ, BNZ, ASB and Kiwibank have removed paywave fees on payments using a debit card until the end of June; Westpac has gone further, waiving fees for six months.
'ANZ is waiving the fee for contactless debit transactions until 30 June to help eligible small business customers prevent the spread of coronavirus,' spokesperson Siobhan Enright told Newsroom.
'Merchants will receive a refund of these fees when their merchant service fee is charged for the month,' Kiwibank's Kara Tait says.
The banks told Newsroom most eftpos terminals were capable of handling paywave transactions and they would be encouraging dairies and small pharmacies to allow paywave.
'We are also looking at options to simplify the process for merchants, particularly essential services, to be able to accept contactless payments and will look to proactively contact these customers,' ASB's Holly Ryan said.
What's different now? Not much
Did those 'No paywave' signs disappear? They did not. Newsroom's totally unscientific survey of retailers within walking distance of the homes of our staff around the country discovered any number of dairies and some pharmacies still not accepting paywave.
Why?
The answer, as far as we can see, is that bank fees are still a problem for retailers. Debit card charges may have gone, but credit card fees are alive and well, and significantly higher than those charged in Australia and the UK, for example.
And they are higher than contactless debit card fees.
That's deterring shop owners, because once they remove that 'no paywave' sign they open themselves up for people not only using paywave debit cards but also paywave credit cards.
Harford, from the Retailers Association, says the shop owners not accepting paywave tend to be the same ones that don't accept credit card payments.
'It's an issue. These businesses operate on extraordinarily low margins and can't take on costs of credit cards,' he says.
Merchant service fee
The banks wrap all the different costs around operating credit cards into a single fee for retailers, called a merchant service fee. This fee covers charges between one bank and another, payments to the credit card company (Visa or Mastercard, for example), and the cost to banks of running their systems, of covering fraud, and of foreign exchange.
But the biggest proportion of that merchant service fee is either profit for the banks or the cost of running what Harford calls the banks' 'generous reward programmes' - those incentives each bank offers to persuade us to use their credit cards.
'Those programmes come at a cost,' Harford says. 'And that cost is paid for by the merchant, even though the bank gets the benefit.'
He says the comparisons with the UK and Australia (where our largest banks are headquartered) show there's room for the banks to cut merchant service fees.
'We think they are still too high. I'd love to see rates come down, for sure.'
Retailer rebellion
Harford agrees there are retailers who could adopt contactless and credit card payments, but don't. Small shop owners who were burned by high costs in the past, or who heard of other retailers who were burned, might not look into what the situation is now.
'There are urban myths around contactless. If you shop around you might get a better deal,' he says.
Meanwhile some dairy owners run 'very fragile businesses', he says, on the borderline in terms of profitability.
'Some of those smaller businesses need to have a close look at their costs and make an assessment of what it would cost to pick up credit and contactless card services.'
This story was originally published on Newsroom.co.nz and is republished with permission.