ComCom advises lower cap on fees to Mastercard, Visa

Wednesday, 18 December 2024

Retailers are happy to see the interchange fees lowered but want more clarity about all aspects of the fee merchants have to stump up with to accept credit card and paywave payments.

The $95 billion in card payments collected by the likes of Mastercard and Visa from businesses for allowing credit card payments each year - passed on to consumers to the tune of around a billion dollars - looks likely to drop somewhat, if recommendations by the Commerce Commission this morning are enacted.

The Commerce Commission has released its draft decision to reduce fees paid by Kiwi businesses for accepting Visa and Mastercard payments, proposing a reduction of several million a year to the largest component of the fees charged when these payments are made.

Commerce Commission chairperson Dr John Small says there is a need for more clarity and simplicity in the fees being charged for payments.

When a consumer uses a Mastercard or Visa credit card or makes a contactless payment, such as Paywave, the business receiving the payment is charged a “merchant service fee”. Almost 60% of that fee is called an “interchange” fee, which is currently capped, but the ComCom has taken the view that cap may be “inefficiently high based on international benchmarks”.

The draft decision would lower that interchange fee, ultimately seeing consumers pay lower surcharges of around 0.7% to 1.0%, or through prices of goods and services that reflect the lower fees. Currently, the average merchant service fee for small businesses is around 1.2% to 1.5%.

Commission Chair Dr John Small said the ComCom was“proposing a reduction of around $260 million a year to the largest component of the fees charged to New Zealand businesses to receive Visa and Mastercard payments. We’re also setting the clear expectation that payment providers and businesses should pass these savings on to customers.

“Excessive surcharging is not easy to spot. Different businesses pay different fees and the Visa and Mastercard fees are themselves quite complex and variable. Simplifying these fees is also part of our focus.

Retail NZ’s Carolyn Young says the body supports the right of retailers to pass through the cost of payments to consumers - but payment fees needed to be “fair and reasonable”.

The likes of Mastercard have argued the reason for excess surcharging lies with merchants, and the fact it is not being policed properly. “The assertion that lowering [interchange] fees will result in lower surcharges is unsubstantiated,” said Ruth Riviere, country manager of Mastercard New Zealand and the Pacific Islands, in a recent editorial for The Post.

“Interchange fees have been reduced through regulatory means previously – only two years ago. And yet, surcharging got worse.”

Retail NZ, meanwhile, representing some 27,000 businesses in the sector, said it supported lower cap fees on interchange fees but wanted the Commerce Commission to investigate regulation for all components of the merchant service fee, as well as for all card schemes and all payment types.

“We support retailers’ legitimate right to apply a surcharge to recover payment costs. Those who choose to surcharge should be able to easily calculate an appropriate surcharge rate or rates, and all retailers should be charged only fair and reasonable fees,” said Retail NZ head Carolyn Young.

“To do this accurately, they require greater clarity from their banks about the fees they pay for different services. Greater simplification and standardisation of fee structures would assist retailers in meeting this objective, as would guidance or regulation addressing how banks communicate fees in their customers’ bank statements.”

Small said that was part of the ongoing work.

“This work is the next step to further reduce, and simplify, payment costs for New Zealand businesses, and to save merchants and consumers a considerable amount of mone.”

We’ll be doing more work next year to determine whether, and to what extent, regulation of surcharges is necessary,” he added.

The Commission is seeking feedback on the draft decision by 5pm, February 18, 2025.