Competition regulator calls for reduction in credit card fees

tercard and Visa fees by regulating – and reducing – interchange fees.

When a consumer makes a purchase with a credit card, the business must pay an interchange fee – which tends to be about 1.2% to 1.5% for small businesses – to the credit card provider. Businesses tend to pass on these fees to consumers, through a combination of higher prices and payment surcharges. The Commerce Commission believes not only that fees are too high, but also that the opaque nature of the system makes it easy for businesses to pass on too much to consumers, whether accidentally or deliberately. 

“If our draft decision is implemented, it would significantly reduce the fees businesses pay to make and receive card payments. These fees are high in comparison to many other comparable countries. The fees are also overly complex, hindering a business’ ability to understand their merchant service fees and accurately surcharge,” the Commerce Commission said.

“Interchange fee rates currently vary across payment type, card type, merchant category and fixed versus percentage rates. There are currently over 150 possible combinations of category and card type for each of Mastercard and Visa. We are proposing to regulate interchange fees for transactions in New Zealand using commercial and foreign-issued cards (which are currently unregulated) and lower the current interchange fee caps for other transactions. We consider these proposed changes would promote competition and efficiency in the retail payment system for the long-term benefit of consumers and merchants.”

Surcharges tipped to fall to between 0.7% and 1.0%

The Commerce Commission estimates that, as a result of its reforms, businesses would collectively save $260 million per year on Mastercard and Visa interchange fees, which they would then be required to pass on in full to consumers.

“We’ve been clear businesses should not be surcharging their customers more than the cost to them of accepting that payment,” Commerce Commission Chair John 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% to 1.0%, 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.”