Merchant anger rising at growing cost of 'interchange' on credit and debit cards

Monday, 2 November 2015

Card charges may be adding adding millions of dollars to the business costs borne by shops and stores, says a New Zealand retail organisation.

Retail NZ, which represents around 5000 businesses nationwide, says it expects to release a report later this month (NOV) into the cost burden of the 'invisible' charges merchants have to pay to accept payments on credit cards and  Mastercard and Visa 'scheme' debit cards.

The charges - called 'interchange' - are applied each time a shopper uses plastic backed by systems other than eftpos.

The amount is based on a percentage value of the transaction, and can differ depending on the type of store which is taking payment and its status.

Some supermarkets for example pay less as they are expected to accept more card transactions.

Retail NZ spokesman Greg Harford said: 'Merchant service fees are a significant and growing cost for retailers and the wider economy. Different card types attract different level of fees, but there is no transparency over these fees for retailers or consumers.

'Contactless payments, for example, attract a fee when standard eftpos doesn't and cards with higher benefits may be more costly for merchants and consumers. Retail NZ is working with members to understand these costs.'

There is growing unease about cost of interchange fees, which are split between the bank that issued the card and the bank that receives the payment.

Retailers fear the cost will rise as credit card and scheme debit cards win market share from eftpos, which is currently free of charges.

Another problem is that the cost of interchange is passed on by retailers as higher prices to consumers.

Some retailers have lobbied government to regulate maximum interchange fees, which are higher than in Australia, where interchange levels are capped.

Banks too are taking the threat seriously. Charges are one of the drivers behind a project to launch online eftpos early next year, to rival the rise of the schemes. 

In a submission to the Reserve Bank earlier this year, Retail NZ called on government to consider regulating interchange fees, arguing it could intervene under the Reserve Bank's mandate to ensure payments systems were efficient.

Sources within the payments industry say the Reserve Bank has been gathering data on interchange leading to speculation about its intentions.

Reserve Bank spokesman Angus Barclay Reserve Bank acknowledged it did gather data, but said it was not empowered to regulate interchange fees. It did regulate the payments system, but only to ensure that it was 'stable and available', he said.

'We are not set up to protect consumers against competitive pressures and pricing within the system, he said.

A consultation paper issued earlier this year on regulating payment systems did not talk about regulating price, though did mention the importance of payment systems being efficient.

Retail NZ hasn't made its submission public, but believes 'efficient' should be interpreted as not costing the economy too much.

ASB is one of the three banks planning online eftpos along with BNZ and TSB. Its technology and innovation manager, Russell Jones, said the factors included demand by merchants, and demand from the public, which is sick of having to pay the big surcharges on airline tickets bought online.

But banks don't want to see more merchants move to surcharging, or start imposing minimum card spends, which could drive an increase in the use of cash.

The possibility of the wave of interchange regulation around the world reaching these shores cannot be ruled out he said.  'In our strategic planning, it is certainly a scenario we are contemplating.'

Jones said in Australia, the UK and countries like Turkey and Poland, interchange is regulated.

In Australia it is capped.

The result is that in New Zealand interchange fees are higher.

There are different rates for different kinds of credit cards and debit cards.

A Kiwi merchant may face charges ranging from below one per cent to over two for super elite cards like some platinum cards.

Retail NZ said some shops had turned the contactless facility off on their terminals to avoid having to shoulder the extra costs.

No-one from Mastercard was unavailable for comment. 

Visa would not be interviewed, but in a statement said: 'Interchange must balance demand on both sides of the payment network. As a networked business, Visa considers all elements across the ecosystem when setting default interchange.'

It said there was no incentive for Visa to set interchange too high as it was not revenue for Visa.'It is a tool used to bring balance to the payments ecosystem for all parties – issuers, acquirers, merchants and cardholders,' it said.