The Commerce Commission has issued its draft decision this week to reduce fees paid by New Zealand businesses for accepting Visa and Mastercard payments. These fees are passed on to consumers through the cost of goods and services, and surcharges.
Peak body Retail NZ has mixed feelings about the draft decision and is looking forward to responding to the government body’s draft decision on interchange fee regulation in the new year.
According to chair John Small, the Commerce Commission is proposing a reduction of around NZ$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,” Small said.
In July, the Commission revealed consumers spend approximately $95 billion each year using Visa and Mastercard products. New Zealand businesses incur around $1 billion in fees to provide these payment options to their customers.
“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 money,” Small said.
When someone 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’. The business will most likely seek to recover this fee in the form of surcharges or higher retail prices.
According to the Commission, some businesses - whether due to finding it difficult to understand the fees they are being charged or because they seek to make a margin on their cost of payments - set their surcharges higher than the actual merchant services fees.
“We’ve been clear businesses should not be surcharging their customers more than the cost to them of accepting that payment,” Small said.
“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.
“If our draft decision is implemented, we’d expect to see consumers benefit from lower surcharges of around 0.7 per cent to 1 per cent, or through prices of goods and services that reflect the lower fees. We’ll be doing more work next year to determine whether, and to what extent, regulation of surcharges is necessary.”
Retail NZ CEO Carolyn Young said retail payments are a contentious area for retail businesses. According to Young, Retail NZ has called for changes in the system, to make it easier for retailers to understand and enable them to provide better customer experiences.
Regarding the new draft decision, Young is pleased that the Commerce Commission is looking to include commercial credit and foreign-issued cards in the new pricing standards.
This was a move that Retail NZ called for in its submission to the Commission’s consultation earlier this year, claiming 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.
Retail NZ also supported the proposal to set lower fee caps for the interchange component of the payments system.
However, Retail NZ claims that interchange fees account for a little over half the total cost of Merchant Service Fees (MSF), adding that 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 shared in a media release. “In our submission, we called for the Commission to regulate the total MSF to provide ongoing certainty for our members.
Retail NZ is welcoming the Commerce Commission’s intention to do further work on regulating surcharges next year to provide a level playing field for all retailers and consumers.
The average merchant service fee for small businesses is around 1.2 per cent to 1.5 per cent, the Commission reported. This means costs for some businesses will be more, and for other businesses will be less.
The Commission expects any surcharges to not exceed costs and encourages businesses paying more than 1.5 per cent to check if they can get a better deal from their existing or new payment provider.
Following the draft decision, the Commission is seeking feedback from stakeholders by 5pm, February 18, 2025. See the Commerce Commission website for further details.