Competition watchdog the Commerce Commission says New Zealand businesses will save an estimated $105 million annually on reduced fees for payment transactions, but it wants to know why more hasn’t been passed on.
The Commission released a report on Tuesday morning into its work regulating the payments sector after new legislation was introduced to tackle card payment charges, including surcharges being passed onto consumers.
The Commission said the amount businesses were expected to save on retail payment fees was well ahead of its initial projections of $74m each year.
In November 2022 initial pricing standards came into effect, capping interchange fees for transactions made by New Zealand-issued cards.
The report found there had been a reduction in domestic interchange fees, but not all of the reduction had been passed to businesses “in the form of lower merchant service fees”.
The Commission said annual interchange fee regulation would provide more than $130m in savings for “acquirers”, usually a bank in the middle of the transaction.
Its current estimate of savings for merchants, or businesses, was $105m.
“We will be doing more work to understand what happened to the estimated $25m difference between the savings for acquirers and savings for merchants,” the report said.
It said average merchant fees had decreased, but it was considering more work to assess why businesses had not received “the full benefit” of interchange fee reductions.
It found average merchant fees decreased between 8% and 18% between October and December 2022 "which can be linked to the domestic interchange fee cap".
But average merchant fees then increased between December 2022 and March 2023, which the Commission could not explain.
Some merchants were paying average fees of close to 2% and others closer to 1%.
"This suggests an opportunity for merchants to get lower fees if they shop around."
The report said businesses should have noticed the fees paid to their banks for retail transactions should have decreased from November 2022.
“If they have not, you should reach out to them and explore whether alternative suppliers could better meet your needs,” the Commission said.
The Commission found some banks were charging merchants up to 2% for some online transactions.
The report is a preliminary assessment of the impact of domestic interchange fee regulation. Interchange fees are fees businesses pay to take payments on the Mastercard and Visa payment networks.
These fees are paid between payment service providers (usually banks) and are a cost that is passed to businesses as part of their merchant service fee for accepting credit cards, and online or contactless debit cards that use these networks.
Under the new Retail Payment System Act 2022 the Commerce Commission started looking into retail payments.
It has asked for information from a range of parties including Visa and Mastercard, banks and payment terminal providers.
Some had only provided limited information from the voluntary request, and the Commission said it may need to use statutory powers to compel market players to provide more information for its monitoring.
For consumers, the Commission said some banks may have reduced the rewards they would get for credit cards.
“This is a signal that you should consider using lower-cost forms of payment.”
Merchant research
In May, the Commerce Commission published merchant research which found more than one-in-five merchants (22%) added a surcharge on some types of cards or transactions.
This research report, based on about 1000 surveys by Kantar Public, found that for merchants who surcharge, four-in-five added a surcharge to Mastercard or Visa credit cards. About two-in-five add a surcharge to debit cards, and 23% to contactless payments.
It found sole traders, businesses with relatively few transactions and those with lower turnover were less likely to offer Eftpos, debit or credit card payments. Credit card, buy now, pay later (BNPL) and contactless transactions were more commonly offered by retail businesses or those in the accommodation or food services sectors.
One-in-ten merchants told the Commission they were no longer accepting at least one form of payment since Covid-19 restrictions started in March 2020.
Merchants said they were no longer accepting cash, Eftpos, debit cards, credit cards, contactless and BNPL.
The cost and wanting to reduce fees were common reasons for having stopped accepting Mastercard and Visa credit cards (2% of merchants) and contactless payments (3% of merchants), Kantar Public found.
Already this week the Commission publicised some wins it had achieved as a result of its market monitoring. It said telco 2degrees and many local councils had agreed to reduce the surcharges being levied onto consumers for some payment types.
The Commission published a letter it had sent to a group of 17 businesses on August 3 updating on its progress in trying to get surcharges dropped.
It said it had sent the merchants initial letters in March which requested “they review their surcharging practices to bring them into line with our expectations and that we were seeking their feedback”.
In contrast with 2degrees, One New Zealand – formerly Vodafone – had refused the Commission’s overtures to drop its surcharges.
The company told the Commission, “at present it is comfortable with its current surcharging practices although it has indicated it intends to regularly review its surcharging practices”.
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