The thorny issue of contactless payments

Saturday, 29 March 2025

Reporter Frances Chin is not alone among her millennial friends in spurning the fees attached to contactless payment. But is it really that expensive, when added up over a month? She tests the theory.

Money. We all want it, but, unfortunately in this day and age, not many of us seem to have much to spare.

With council rates rising, cost of living at an all time high, and a 1kg block of cheese now more than a nice lunch out ‒ being alive is expensive.

Which is why it makes sense people are avoiding surcharges on contactless payments.

Once seen as the future finally reaching New Zealand, PayWave as it is colloquially known (although that just applies to the Visa technology) has been relegated to small handwritten signs taped to the top of Eftpos machines.

The surcharges these signs warn of ‒ usually ranging from 1.2% to 1.5% ‒ are the business asking customers to pay a “merchant service fee”.

While larger chain businesses like supermarkets or retail giants are easily able to manage this fee, smaller businesses are increasingly struggling with the added cost, leading them to pass it onto customers.

Even local government is not exempt: Greater Wellington Regional Council announced it would be charging Snapper users extra to use the app to top up their cards, with chairperson Daran Ponter saying the council could no longer afford the merchant services fees as they were forced to recoup costs due to a $134m shortfall in transport and infrastructure funding.

A 2024 report by Paymentsnz found while the number of people using contactless had remained unchanged since 2023, more had said they only used it when there was no surcharge.

I used my contactless card for a month, from February 20, and calculated the total of added cost from all the surcharges that had applied.

Surprisingly, it wasn’t that much: $3.89. Then again, the majority of my large expenses ‒ groceries, petrol, and rent/bills ‒ are either conducted through internet transfer, or were done through large chain providers who could easily swallow the surcharge.

The purchases, which varied in cost from $8.10 to $30.45, were mostly small food items. A $10 spanakopita tart from Belen Bakery cost $10.15, or a $14 jug of beer from JJ Murphy cost $14.28. A $30 Snapper payment via the Snapper app raised to $30.45.

Over a year, this would add up to about $50 ‒ but is that really such a high price to pay for ease?

When did surcharging become a thing?

When the payment technology ‒ a small chip in Visa and Mastercard debit cards ‒ hit New Zealand from 2010 to 2016 it felt revolutionary.

Then Covid happened. A Commerce Commision report found more merchants turned on contactless payments during the early stages of the pandemic. When lockdown restrictions lifted, many started paying more service fees. While some chose to disable contactless, this was when the surcharge epidemic began.

While the Retail Payment System Act has regulated these surcharges, putting a limit on interchange fees, surcharging is still rampant with both consumers and retailers finding the technology maybe more trouble than the ease it is meant to bring.

Just what is a merchant service fee?

Retail NZ chief executive Carolyn Young said the merchant service fee could be combination up to six different fees that occur when the transaction takes place.

“So, this can be four different players in the market for that one transaction, or it could just be two, because it could be that all of those things are done by your bank.”

The Commerce Commission was looking at regulating the interchange fee, Young said, which was paid to the card issuer - usually the bank, as the bank was the one who issued the debit card or credit card.

Under the current regulations the Commerce Commission had in place, a merchant could charge a surcharge equivalent to the fee they were being charged, she said.

However, it was difficult for merchants to understand the transactions and the fee structure they were faced with, making it difficult for them to know what the actual amount they should be charging was, Young said.

The terminal the transaction took place might be from the bank, or from another independent provider, which meant there could be variation on what the fee was.

“So it’s a very complicated space. The Commerce Commission is trying to regulate some of the fees to bring the overall costs down to consumers and to businesses.”

Retail NZ wanted a streamlined, simpler process for businesses to be able to understand, Young said. It supported surcharging as a way of helping businesses recover the costs they were incurring.

There was a balance to be found between embracing technology and having the costs attached to the technology at a sustainable and affordable levels for everyone, she said.

“If you're using contactless, it's obviously really quick, and that means that you can, at that point of sale, move through quite quickly … it makes it really simple.

“But, how do we manage monitor the increasing use of technology and advancements of technology against the cost of doing so? It's just that balance.”

What is the Commerce Commission proposing?

A Commerce Commission spokesperson said they were proposing a reduction of around $260 million a year to interchange fees, which were the largest component of the fees charged 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 through reduced surcharges.”

If the draft decision was implemented, the commission expected consumers benefit from reduced surcharges of around 0.7% to 1.0%, or through prices of goods and services that reflect the lower fees.

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

The spokesperson said the next step was to further reduce and simplify payment costs for New Zealand businesses, and to save merchants and consumers a considerable amount of money.

Submissions on the interchange fee regulation draft decision had recently closed on March 18, he said.

Mastercard New Zealand and Pacific Islands country manager Ruth Riviere told The Post last year the surcharges merchants were charging customers were more than the merchant service fees they were paying.

While the Commerce Commission had found these underlying costs to businesses were about 1% on average, cardholders were paying an average surcharge of 2%, she said.

Riviere said Mastercard estimated Kiwi cardholders had paid $90 million in excessive surcharges for in-store payments.

She said there was evidence from the US and Europe that when interchange fees were reduced to unsustainable levels, cardholders suffered.

“This is because interchange is not just an arbitrary cost, but rather a crucial balancing mechanism in the ecosystem to fund better card propositions.”

Instead, Riviere suggested that the Commerce Commission ban surcharging in New Zealand.

“It would bring welcome relief to the confusion of different surcharge rates, illegible signs, and poor retail experiences, including our experience for tourists.”

How do small businesses feel?

Neo Cafe & Eatery manager Elliot Doe said the popular Willis St cafe was now charging customers a 1.5% fee to use contactless payments.

Neo was implemented the surcharge as the cost of accepting the payments was “just getting ridiculous.”

He had discussed the matter with customers, explaining that it wasn’t really the cafe’s choice, but the bank’s.

“I think it's one of those sort of necessities nowadays. So many people don't have their cards, it's all on their phone. Even people that do have their cards will quite often say, ‘Oh, I forgot the PIN’, which makes me laugh. How can you forget your own PIN?”

Contactless payment was one of those services businesses “had to have” now, Doe said, with most people preferring to “tap and go” when purchasing.

“You don't have that, it cuts off the whole market for you as a business.”