New Zealand retailers are not entirely happy with the Commerce Commission’s decision to reduce interchange fees paid by local businesses when accepting Visa and Mastercard payments.
According to the competition authority, it costs New Zealand businesses around NZ$1 billion a year to accept Visa and Mastercard payments, which is often passed onto customers through surcharges and higher product costs.
The Commission determined this cost is too high and has acted to reduce it for businesses by around $90 million a year.
“This is an important step in our continued work to cut costs for businesses and consumers,” Commerce Commission chair Dr John Small said. “Our latest decision builds on the initial fee caps set in 2022, which led to $140 million in annual savings to New Zealand businesses.
“We expect our latest decision to see the average small business save around $500 each year in lower fees. Individual businesses could save more or less, depending on the mix of transactions they accept.”
Peak body Retail NZ welcomed the Visa and Mastercard fee regulation, but CEO Carolyn Young said she and her team are disappointed that commercial credit cards and prepaid cards are not currently included in the new pricing standards.
“This was a move that Retail NZ called for in our submission to the Commission’s consultation last year, saying the focus on Mastercard and Visa was too narrow and only partially addressed the issues faced by retailers and the flow-on effects for customers,” Young said.
“Retail payments are a contentious area for retail businesses. We have called for changes in the system, to make it easier for retailers to understand and to enable them to provide better customer experiences and for lower fees.”
Retail NZ supported the Commerce Commission’s proposal to set lower fee caps for the interchange component of the payments system.
However, it added that interchange fees account for a little over half the total cost of Merchant Service Fees (MSF) and retailers have concerns about the cost of other components.
“A reduction in the interchange fees alone will not address the overall costs that retailers pay via MSF,” Retail NZ noted. “In our submission, we called for the Commission to regulate the total MSF to provide ongoing certainty for our members.”
Retail NZ also welcomed the Commerce Commission’s intention to do further work on regulating surcharges to provide a level playing field for all retailers and consumers.
Dr Small said that its recent decision balanced lower costs for merchants while keeping incentives for new fintechs to innovate and challenge the big established incumbents.
“That meant leaving enough money in the system to keep it competitive and safe from fraud and scams over the long term,” he said.
Consumers can expect these cost savings to flow through to fewer and lower surcharges, but regulation may still be needed to curb excessive surcharging.
“We’ll be exploring what regulation may be needed to address excessive surcharging, which we consider to be anything more than the cost businesses face to accept Visa and Mastercard payments,” Dr Small added.
Regarding commercial credit card and prepaid debit card payments, Dr Small said he and the team decided not to regulate fees here based on feedback shared during the consultation period.
“We’re looking to understand more before deciding if these payment types should be regulated,” Dr Small said.