The Commerce Commission says Kiwis pay around $1 billion a year on ‘PayWave’ and online credit card payment fees - and is consulting on regulation it believes could save $250m from that total. 

Our market watchdog has kicked off a process that could see instore “Paywave” and online fees for paying by credit card capped by regulation - which it says could save Kiwis $250 million per year. 

The Retail Payment System Act 2022 put a ceiling on interchange fees, or the amount paid by the issuer of your card (usually your bank) to a store’s acquirer (usually its bank). 

Interchange fees are a key contributor to the fee when you tap your credit card online or in-store (the surcharge for a contactless credit card payment is popularly known as a PayWave fee after Visa’s tap-and-go terminology, even though Mastercard’s system has it’s own name, PayPass). 

But so are the fees that Visa and Mastercard charge for access to their payment networks - called “scheme fees” in regulatory-speak. 

Consumer NZ campaigns manager Jessica Walker told the Herald in May that, despite the new law, “the charges in some places are overwhelmingly high”. 

The ComCom’s goal is a 1.5% to 2% surcharge for domestic credit card contactless or online payments (or, ideally, a retailer absorbing the cost). 

But Consumer said many retailers still charged 2.5, 3 or even 5% - while some charged a flat fee that could equate to a much higher percentage of a purchase. 

The Retail Payment System Act 2022 has provision for the ComCom to recommend tighter direct regulation. It is due to send a recommendation to Commerce and Consumer Affairs Minister Andrew Bayly by the end of the third quarter. 

Bayly would then take that recommendation to Cabinet on an open timeline. 

Bayly earlier told the Herald he would keep his powder dry until he saw the regulator’s final recommendation. 

0.7% target 

The regulator gave a clear indication of its thinking this morning. 

ComCom chairman John Small said fees are unnecessarily complex, which could be increasing the surcharges consumers face. 

“Reducing and simplifying these fees could reduce surcharges or even remove the need for surcharging altogether in some cases. This would also make it easier for consumers, the commission and industry to identify where surcharges are excessive,” Small said. 

“Surcharges should only reflect the costs of accepting these card payments and we are exploring changes to fees which could see surcharges reduced to 0.7% or less.” 

$1b in charges annually 

The regulator says Visa and Mastercard’s scheme fees have a purpose - they held fund networks that are crucial for Kiwis making an international purchase, or travelling overseas. 

Scheme fees help buoy Visa and Mastercard policy to issue a full refund if your card details are swiped and used for a fraudulent transaction (unless you’ve been negligent with your security, such as revealing your Pin). That’s been a bacon-saver for many Kiwis. 

But the ComCom also implied today that they are too high. 

Small said consumers spend approximately $95 billion using Mastercard and Visa each year in New Zealand which costs businesses – and ultimately consumers through higher retail prices and surcharges – around $1b annually. 

“We think this cost is too high, especially when compared to our international peers, and see the potential to reduce these fees by more than $250 million per annum,” Small said. 

When someone uses a Mastercard or Visa card without inserting it in a terminal, the business receiving the payment is charged a “merchant service fee”. 

“We see the opportunity to reduce a significant component of the merchant service fee, which should in turn allow businesses to reduce retail prices as well as surcharges, for the benefit of their customers,” Small said. 

Open banking also in focus 

Small said this consultation also asks questions about other issues the Commission considers may require attention such as a lack of innovation and pace, which may be barriers to new and more secure payment options made possible through open banking. 

“Our focus is on the greatest benefit to consumers and merchants, and we see scope to both reduce fees and increase choice for the long-term benefit of New Zealand consumers and businesses,” he said. 

The Customer and Product Data Bill, driven by Bayly and introduced to Parliament in May, with the aim of promoting open banking. Its aim is to make the landscape easier for third-party apps to provide alternatives to paying through today’s eftpos and credit card networks - with the competition serving as as further pressure on the traditional players to lower fees. 

But some of the “when” and the “how” is still down to industry self-regulation. The major banks (apart from Kiwibank, which is on a two-year lag) say they will have their systems ready for open banking by end end of November. 

Consumers and businesses can chip in to the Commerce Commission’s consultation process here. The deadline is August 20. 

Visa and Mastercard have been asked for comment. 

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.