Why the tax for a tap? Retail surcharges explained

Wednesday, 30 July 2025

The government has announced it plans to scrap in-store surcharges for Visa and Mastercard payments by May 2026.

Many consumers breathed a sigh of relief at the announcement on Monday, but hospitality and retail businesses were quick to warn that they may need to raise prices to absorb the cost.

This is despite the Commerce Commission moving this month to reduce the fees paid by Kiwi businesses when accepting Visa and Mastercard transactions.

But what exactly are these fees, and why have we been paying surcharges anyway?

Let’s take a look.

Why it costs more to tap

Ever since credit cards became popular in New Zealand, businesses have been paying for the privilege of accepting them. Now, it is the case with contactless payments too.

“Basically, credit card companies, through the bank, charge merchants for the convenience of being able to accept a payment by credit card,” said Massey University’s Claire Matthews.

“For a long time, businesses simply absorbed the credit card cost. But as people's transaction behaviour has changed, particularly with the introduction of PayWave, I suspect businesses are finding there are more of those types of payments and the charges that they're having to pay have increased.”

Cue the consumer surcharge.

The actual make-up of these fees is a complex and murky system that seems to get more complex and more murky the further you look into it - which Stuff’s Explainer Editor Lloyd Burr did last year.

But to make a long story very short - some of the fees paid by merchants go to the payment processing company (think: Windcave or Worldline, formerly Paymark), some go to banks, and some are used by the banks to pay Mastercard or Visa.

The exact make-up depends on the card being, the merchant’s Eftpos provider and the banks involved. But surcharges are only passed on to the consumer for credit card and contactless transactions because the fees are so low for the alternatives (on average, 0.2% for Eftpos or debit cards you insert).

According to Troy Clarry, owner of Kerikeri Park Lodge in Northland and Whangaparaoa Lodge in Auckland, the fees vary widely. In one month alone, he saw 22 different fee combinations across 50 transactions. He passes these on to his customers.

“The cost averages out to be well over 2.5% per transaction. For one $475 charge, I paid $13.03 in fees,” he said.

Once travel agent or booking website commissions are added in, as well as international card processing fees, his profit margin would suffer if he bore that cost himself, he explained.

Is anyone regulating this?

Commerce and Consumer Affairs  Minister  Scott  Simpson announced on Monday that the government will ban businesses from passing these merchant fees on to consumers as a targeted surcharge. This means you will no longer be penalised for using a credit card or PayWave.

But it won’t take away the merchant fees for businesses, which is why some are warning they will be forced to increase prices as a result.

It does go hand in hand, however, with a move by the Commerce Commission to limit interchange fees.

Here’s where we have to get a bit technical.

Interchange fees are fees paid by the vendor’s bank or payment processing company to the customer’s bank. According to the Commerce Commission, they make up about 60% of a merchant’s fees and, in their view, they have climbed too high to promote a competitive and effective retail payment system.

Luckily, the Commerce Commission has the power to monitor and regulate these interchange fees.

So, from December 1, the maximum interchange fee on an in-person credit card transaction will be 0.30% (down from 0.8% now), while the fee for a contactless debit card payment will remain at 0.2%.

The remainder of a merchant’s fees remain out of the commission’s control, although it warns it will be watching to ensure the savings are passed on to merchants, and then consumers.

Whether this will be enough for businesses to absorb is yet to be seen.