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New Zealand’s Commerce Commission has launched a consultation that aims to examine whether locals are paying too much to make and receive Visa and Mastercard payments.
The regulator capped most interchange fees in the country in 2022, but fears that they are still too high compared with those in other similar jurisdictions.
The consultation also raises the possibility of scrapping interchange fees altogether, although the regulator said it does not believe that this would be appropriate.
The commission argues that scrapping interchange fees altogether could hinder further investment by payment providers. Instead, it is more inclined to promote cost savings and price efficiency by revising the fee caps.
The bigger picture
The current caps on domestic interchange for debit card payments in New Zealand are 0.2 percent for contactless in-person transactions and 0.6 percent for online transactions.
In its consultation document, the commission proposes reducing the limit to 0.2 percent for both credit and debit transactions.
In comparison, in Australia, interchange fees are capped at 0.8 percent for credit card transactions and 0.2 percent for debit card transactions; in the EU, the caps are 0.2 percent for debit and 0.3 percent for credit.
International interchange fees are significantly higher: the Commerce Commission has suggested a blanket interchange fee cap of 1.15 percent for cross-border transactions, which would be a reduction of more than 50 percent from current rates.
The EU caps interchange fees for those using cards issued outside the bloc at 1.15 percent for in-person transactions and 1.5 percent for card-not-present transactions.
Why should you care?
The issue of interchange fee caps is more settled in some markets than in others — and the level of these fees can vary considerably.
Given that the Commerce Commission initiated the consultation because of concerns that the current caps are too high, the most likely outcome is a reduction in those caps. This is clearly highly relevant for organisations operating in New Zealand, but would not create any waves in other jurisdictions.
However, the scrapping of interchange fees altogether would have a wider impact.
This outcome seems unlikely, given that the commission itself has made the case against removing interchange fees, but the mention of it as a possibility will have caught the attention of other regulators, and any strong argument in favour of outlawing these fees could start to move the dial.
Potential impacts on merchants:
- Cost implications. Removing interchange fees would reduce the cost burden on merchants, which could lead to lower prices for consumers and higher profit margins for businesses.
- Operational changes. In the absence of interchange fees, card networks would likely change their business models, perhaps introducing new fees or services, which would affect the way merchants manage payments.
- Investment in payment systems. If payment providers suffer a drop in revenue, they may reduce investment in payment technology and infrastructure, which could slow innovation in the sector.
- Competitive dynamics. With no interchange fees to consider, merchants could increase their negotiating power with payment providers, leading to more favourable terms and conditions for card acceptance.
Potential impacts on card networks and regulated businesses:
- Revenue adjustments. If interchange fees are scrapped, card networks and regulated businesses such as banks would face significant revenue adjustments, which might prompt them to re-evaluate their business models and pricing structures.
- Cost management. Without interchange fees, such businesses would likely have to find new ways to manage costs and maintain profitability, perhaps by introducing new fees or charges elsewhere.
- Market competition. Outlawing interchange fees could significantly change the competitive landscape, perhaps encouraging more innovative payment solutions and benefiting new market entrants.
- Regulatory scrutiny. If New Zealand were to scrap interchange fees, and the change proved successful, regulators elsewhere might follow suit, meaning card networks and regulated businesses would have to adapt to a changing regulatory environment.
Stakeholders have until August 20, 2024 to respond to the consultation. Any party with an interest in the level of interchange fees charged in the New Zealand market should think about sharing their views with the commission to give it the best chance of devising a successful strategy.
