The payment processing racket is finally getting busted

Sunday, 3 August 2025

Commerce and Consumer Affairs Minister Scott Simpson says that in-store charges are like any other 'cost of doing business'. By mid-2026, the Government will ban most credit card and pay wave surcharges.

Katie Wesney is a financial adviser at enable.me.

OPINION: You know that moment when you’re buying a coffee, tap your card, and suddenly there’s an extra 50 cents you weren’t expecting? It’s like ordering an Uber, then discovering at your destination that using the app costs extra. The ride’s over, you’re committed, and walking away feels more trouble than it’s worth.

That awkward checkout dance has been playing out across New Zealand for years, but it was never really about café owners trying to squeeze extra profit from your flat white. The real story is much bigger: Banks and payment processors have been charging businesses excessive fees, and those surprise surcharges were just the symptoms of a broken system.

Now the government is fixing both the underlying problem and the customer experience.

The fees behind the fees

Here’s the number that explains everything: New Zealand businesses pay around $1 billion annually just to accept your Visa or Mastercard. The Commerce Commission looked at this system and concluded it was simply “too high” - bureaucratic language for “genuinely excessive”.

That corner dairy owner adding 2.5% to your milk purchase wasn’t being greedy. They were caught between rising payment processing costs and customers who understandably hate surprise fees. Consumer NZ received nearly 300 complaints about surcharges hitting as high as 25%, but those extreme cases were just the visible symptoms of a much larger problem.

A selection of surcharge notices with varying rates.

Most merchants adding surcharges were simply trying to survive. Payment processing was eating into already thin margins, but surprising customers with fees at checkout made them look like the bad guys. It was a lose-lose situation created by a system that charged too much while offering too little transparency.

Fix the cause, then the symptom

What makes this policy genuinely smart is the sequencing. Instead of just banning surcharges and leaving businesses to absorb inflated costs, the government tackled the root cause first.

Interchange fees - the wholesale charges that make up 60% of payment processing costs - are dropping by $90 million annually this December. Then, five months later (in May 2026), surcharges disappear entirely. It’s like negotiating lower wholesale prices before requiring transparent retail pricing.

This means businesses get real cost relief right before losing the ability to pass fees directly to customers. A café that was charging $5 plus 50 cents in surcharges might now charge $5.20 total - saving you 30 cents while eliminating the checkout surprise.

Why this helps everyone

Lloyd Burr asks why Kiwis should pay a fee to use their own money (in one of the toughest explainer pieces he's done so far)

For merchants, this solves an impossible position. Small business owners didn’t get into hospitality or retail to have awkward conversations about payment fees. They wanted to focus on serving good coffee or stocking useful products, not explaining why their payment system costs extra.

Now they can build lower processing costs into their prices without uncomfortable checkout explanations. They can compete on the quality of their service and products rather than who’s best at navigating payment-fee politics.

As a customer, you get both benefits: genuinely lower costs in the system and upfront pricing that lets you make informed choices. You can finally compare true costs between businesses instead of discovering surprise fees after committing to a purchase.

Even the payment companies support this change. Mastercard notes that “payment acceptance costs have never been lower”, suggesting the technology has evolved beyond what the old pricing models reflected.

The international context

The UK and EU already ban surcharges, but they implemented these rules while leaving merchants to absorb whatever processing costs banks felt like charging. Australia is moving towards a similar ban, but they’re still working through the cost implications.

New Zealand’s approach addresses both sides: reducing the excessive fees that created the problem while improving transparency for customers. It’s a more complete solution that recognises the legitimate needs of both businesses and consumers.

What this means for your daily shopping

Your shopping experience will improve in multiple ways. You’ll see true costs upfront, those costs should be lower thanks to reduced processing fees, and you can make purchasing decisions based on complete information.

Mastercard notes that “payment acceptance costs have never been lower”, suggesting the technology has evolved beyond what the old pricing models reflected.

Pay attention to how businesses adjust their pricing after May 2026. Companies that were using surcharges appropriately to cover genuine costs should see minimal price increases, especially given the concurrent fee reductions. Businesses that were charging excessive surcharges will need to compete on transparent pricing or risk losing customers to more honest competitors.

The exceptions still matter. American Express and foreign cards will carry surcharges, which makes sense given their different cost structures. But for everyday Visa and Mastercard transactions – the majority of what most people use - both underlying costs and pricing transparency are improving.

The real win

This policy addresses a payment processing system that was quietly extracting too much money from the economy while creating frustrating experiences for businesses and customers alike.

Small businesses get cost relief and can focus on their core offerings rather than managing payment-fee optics. Customers get clarity and lower effective costs. The broader economy benefits from more efficient payment processing that serves commerce rather than complicating it.

The main adjustment falls on banks and processors who were extracting oversized profits from every transaction. When even the payment companies support these changes, it suggests the old system has clearly outlived its usefulness.

Your morning coffee might cost about the same, but you’ll know exactly what you’re paying before you order. More importantly, less of your money will disappear into unnecessary payment processing margins and more will go towards the actual goods and services you’re buying.

That’s not just more convenient - it’s how efficient commerce should work.