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New Zealand’s Commerce Commission has come out against removing interchange fees, which make up the bulk of merchants’ payment acceptance costs, but is considering revised fee caps.
After capping most interchange fees for the first time in 2022, the regulator is once again exploring whether New Zealanders are paying too much to make and receive Visa and Mastercard payments.
In a consultation published this week, the commission raised the possibility of scrapping interchange fees for all Visa and Mastercard transactions.
Although it concluded that setting these fees to zero may "hinder further investment by challenger providers of payment instruments", the regulator said it sees the potential to deliver “more efficient pricing” and “significant cost savings” by revising its fee caps.
“Whilst [scrapping interchange fees] would minimise merchant costs, we are concerned to ensure that payment providers are able to earn revenue from a payment service to support ongoing investment,” it said. “Consequently, we do not believe this will be appropriate.”
As the commission noted, there is already one type of payment in New Zealand that does not charge interchange fees, but its usage has fallen dramatically in recent years.
When a New Zealander pays by swiping or inserting a debit card at the point of sale, the merchant is not charged interchange fees on any card network, whether that be Visa, Mastercard or EFTPOS, the country’s low-cost domestic scheme.
However, the New Zealand government has long warned that these contacted, in-person debit transactions are in decline, meaning that merchants no longer enjoy the cost savings offered.
The commission’s latest proposals
The commission is now proposing drastic cuts to interchange fees across the board, and is also proposing that international interchange be capped for the first time.
For Visa and Mastercard transactions, the regulator has proposed a blanket reduction in interchange fees to 0.2 percent for domestic transactions (for both credit and debit).
At present, interchange for debit card payments is currently capped at 0.2 percent for contactless in-person transactions and 0.6 percent for online transactions.
If the interchange for a contactless in-person debit transaction is charged as a flat fee rather than a percentage, the cap is set at NZ$0.05 ($0.03).
Meanwhile, for personal credit card payments and commercial credit card payments, the current interchange fees can be as high as 0.8 percent and 2.2 percent respectively.
Interchange fees on international transactions, which remain unregulated, can be as high as 2.35 percent for Mastercard and 2.4 percent for Visa.
For these international transactions, the commission has proposed a blanket interchange fee cap of 1.15 percent — a reduction of more than 50 percent compared with current rates.
If the proposals are adopted, the commission estimates that New Zealand merchants will save NZ$250m ($148m) per annum on total fees.
“We recognise that this would change incentives and outcomes across the retail payment system,” it said. “For example, it would encourage existing and potential issuers of payment instruments to innovate outside of the Mastercard and Visa ecosystems.
“This would increase payment options for merchants and consumers and increase competition and efficiency within the retail payment system.”
Jason Roberts, chief executive of FinTech NZ, told Vixio that he has been “really impressed” with the constitution paper, describing it as “open, transparent and attentive to detail”.
“From a fintech lens, we encourage any initiative that promotes competition and lowers fees - which are the precursors to innovation,” he said. “In turn, this provides a standard customer experience and also builds trust.”
Carolyn Young, chief executive of Retail NZ, said she will be consulting with members over the next few weeks prior to providing a full response to the Commission.
“However, retailers would welcome a reduction in fees they are currently being charged,” she said.
Why now?
Explaining its rationale for the proposals, the commission said that interchange fees in New Zealand are “materially higher” than those in similar jurisdictions such as the UK, EU and Australia.
In Australia, interchange fee caps are now in the order of 0.8 percent for credit card transactions and 0.2 percent for debit card transactions.
Within the EU, the caps are set at 0.2 percent for debit and 0.3 percent for credit. For transactions in the EU using cards issued outside the bloc, interchange is capped at 1.15 percent for in-person transactions and 1.5 percent for card-not-present transactions.
The commission said it is “not aware of any adverse impact” in these jurisdictions from the lowering of interchange fees through regulation.
“Introducing further interchange fee regulation may support more reasonable pricing for New Zealand businesses accepting Mastercard and Visa card payments and improve short-term efficiency of the retail payment system,” it said.
“This could also reduce costs and complexity to merchants and promote greater competition and efficiency in the retail payment system in the long term.”
Industry stakeholders have until August 20, 2024 to respond to the consultation.
