Government to introduce law to tackle merchant fees, saving businesses up to $74m
Wednesday, 12 May 2021
The Government says new legislation to restrict merchant fees could save businesses up to $74 million each year – but there is a warning those savings may not be passed on to shoppers.
Commerce and Consumer Affairs Minister David Clark announced on Wednesday the introduction of legislation aimed at reducing merchant service fees, the fees banks charge businesses when customers use a credit or debit card to pay.
Before the global pandemic, the primary method of payment for shoppers was eftpos. But customers were increasingly favouring contactless debit and credit cards, Clark said.
“The high cost of these fees puts added financial pressure on businesses at a time when they are dealing with the economic impacts of Covid-19,” he said.
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“Reducing the merchant service fees that New Zealand businesses are being charged is a priority for this Government and critical to the recovery of the economy.”
Merchant service fees were unregulated and have been set higher in New Zealand than they were in Australia, he said.
The merchant fees could add significant overheads for retailers who often passed these costs on to consumers, he said.
Following feedback from a recent consultation period, a Retail Payments Systems Bill will be introduced later this year to require reductions in interchange fees as soon as possible; to enable direct intervention by the Commerce Commission using a broad suite of powers to regulate different participants in the retail payment system; and to introduce a disclosure and reporting requirement to enable the commission to monitor the retail payments system.
“One of the main components of merchant service fees is the interchange fee. We will cap those for credit card transactions at 0.8 per cent, which is in line with Australia,” Clark said.
“We are also capping the interchange fees charged for online debit card transactions at 0.6 per cent. Contactless debit card interchange fees will stay at their current levels of 0.2 per cent or less, and for swiped and inserted debit, it will stay at 0 per cent.”
Clark said smaller retailers and those who relied on credit or online sales would particularly benefit from the savings.
The Government aims to seek final policy decisions on reducing merchant fees in mid-2021, with a view to the full regulatory regime coming into effect next year.
Massey University professor David Tripe said the main thing consumers would notice from this legislation was the wider availability of contactless payment options.
“There are some small retailers who are discouraged from acceptance of credit cards and contactless payments by the fees,” he said.
Last year a number of banks introduced a waiver of fees during the pandemic but these were subsequently reintroduced.
“Some of those that had been processing contactless stopped processing contactless [because of the cost].”
Tripe did not expect there would be a noticeable drop in prices for consumers.
“There will be a small reduction in costs for some retailers but will they pass that on to consumers? Not immediately, I wouldn’t think. It gives them a little more flexibility in terms of pricing, I would think.”
Restaurant Association chief executive Marisa Bidois said the Government’s move was welcome news.
“Regulation on merchant fees is something we have lobbied hard for, so we are happy to see that the Government is listening,” she said.
“Merchant card fees have been on the increase since contactless payments have come into more general use. These fees have been costing our businesses thousands each year.”
In a survey of Restaurant Association members conducted earlier this year, 69 per cent of respondents said they would like to see government regulation to reduce merchant service fees, she said.
“Just under 90 per cent of our members believe that the current merchant fee system needs to change. We still experience higher prices in New Zealand than in Australia and the United Kingdom, and pay nearly twice as much as Australian retailers pay in merchant fees. On average, we understand it is estimated to be $13,000 per year more than Australian counterparts.”
Bidois said transparency around merchant fees would be beneficial to hospitality businesses in the long term.
Retail NZ chief executive Greg Harford said he welcomed the Government’s decision to tackle merchant fees but he would like to see the rules go further.
“For far too long New Zealanders have been paying high merchant fees and it is fantastic news that the Government is finally moving to bring us in line with other countries that pay significantly less,” Harford said.
“However, we note that there [are] other charges included in the overall merchant service fee charged to merchants. Additionally, e-commerce and buy-now-pay-later services, as well as mobile wallets, incur even higher charges. We hope that the new regulator will use its powers to review and bring these fees down as appropriate.”
Harford said Retail NZ would be carefully reviewing the documents and would provide further input as the final details were worked through over the coming weeks.
ANZ, Westpac, ASB and BNZ have been approached for comment.