Commerce Commission Targets Payment Fees to Save Consumers $250 Million Annually
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- The Commerce Commission aims to cut Mastercard and Visa merchant service fees.
- The proposed fee reduction could lower retail prices and consumer surcharges.
- Public consultation is underway to address the fees and enhance payment options.
The Commerce Commission has initiated a public consultation aimed at reducing the fees charged by Mastercard and Visa for non-terminal transactions. This move could potentially save New Zealand consumers $250 million each year.
Commission chair John Small emphasised the need to encourage competition and efficiency in the $95 billion market managed by these card payment companies. Presently, businesses and consumers are burdened with about $1 billion annually in merchant service fees. Small remarked, “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.”
According to the Commission, the fees are “unnecessarily complex,” leading to increased surcharges for consumers. “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 added. He advocated that merchant service fees should only cover the transaction costs, suggesting that a reduction could lower business expenses and subsequently retail prices.
Currently, small businesses, particularly in the hospitality sector, often impose surcharges of around two percent for paywave transactions. Small mentioned that the Commission is “exploring” changes to reduce these surcharges to 0.7 percent or less.
The consultation will also examine if innovation is being stifled by the lack of new and secure payment options through open banking. “We see scope to both reduce fees and increase choice for the long-term benefit of New Zealand consumers and businesses,” said Small.
The Retail Payment System Act 2022 has already set a ceiling on interchange fees, which are part of the cost when tapping a credit card. However, the Commission is also focused on the “scheme fees” charged by Visa and Mastercard for network access. The Commission aims for a 1.5% to 2% surcharge for domestic credit card contactless or online payments, ideally leading to retailers absorbing the costs.
Despite this, some retailers still charge as high as 2.5%, 3%, or even 5%, with some applying a flat fee translating to a much higher percentage of a purchase.
Small indicated that simplifying these fees could eliminate the need for surcharges, making it easier to identify excessive charges. The Commission also highlighted the importance of Visa and Mastercard’s scheme fees in maintaining secure payment networks and anti-fraud measures. However, they stressed that current fees might be too high and that reducing them could significantly benefit consumers and businesses.
Consumers and businesses are encouraged to participate in the Commerce Commission’s consultation process, with a deadline set for August 20.