Retail NZ, chambers of commerce, industry and business associations have signed an open letter expressing concerns about the Government's proposal to ban all surcharges. Photo / Sharepix
Thirty-six industry and business associations, including Retail NZ and the Auckland Business Chamber, have signed an open letter expressing concerns about the Government’s proposal to ban surcharges on all in-person transactions via the Visa and Mastercard networks.
But Prime Minister Christopher Luxon and Minister of Commerce and Consumer Affairs Scott Simpson have pushed back against the group, arguing that the move aligns New Zealand with our international counterparts.
The letter said that while the intention behind the policy may be to protect New Zealand consumers, the signatories believe it is a “misguided intervention” that risks harming both consumers and the businesses that serve them.
“The ability to apply surcharges is a vital tool for cost recovery, especially for small- and medium-sized enterprises already facing rising operational expenses,” the letter said.
“Many New Zealand businesses do not apply surcharges, demonstrating that the market is functioning and that businesses are making informed decisions based on what works for them and their customers.”
The signatories believe that a blanket ban will remove this flexibility and impose a one-size-fits-all solution to a complex issue, noting that credit card transactions carry significantly higher processing costs than Eftpos or debit card payments.
The letter also reiterated concerns from consumer and business groups that retailers will be forced to absorb the fees, likely resulting in higher prices for all consumers regardless of their payment method.
Retail NZ chief executive Carolyn Young said payments are a complex space that is difficult for businesses to navigate, particularly small-to-medium enterprises, and argued that the Government had failed to do meaningful consultation on the decision.
“I think that they haven’t really thought through everything and the unintended consequences of putting a surcharge ban in place versus putting a cap in place,” Young said.
“It’s not like surcharging is unique to New Zealand; it happens across the world. Once this ban is put in place, it’ll no longer be transparent where the fees sit and how you’re being charged.”
She said that Retail NZ members had expressed their confusion with the policy, saying they didn’t expect it from this Government.
Young argued that the changes will accelerate the decline of Eftpos transactions, leading to an increase in the cost of fees because the use of Eftpos is free.
“About 40% of transactions run through Eftpos now. If it goes down to 30%, 20%, 10%, eventually down to zero, that means no transactions for a business will go through without any fees.”
She implored the minister to return to the Commerce Commission’s intended plan of placing a cap on surcharges, followed by a review into what surcharging means for business and what implementations might be put in place.
The Government has swiftly reacted to the group’s letter, dismissing concerns from businesses in favour of consumer transparency.
Luxon said he wants to see “maximum transparency” when it comes to pricing.
“We know there has been some inconsistent overcharging and recovery of surcharges,” the PM said.
“We’ve got a values set in New Zealand, which is we have very transparent pricing, we don’t want to see a growth in surcharges and other add-ons. We want to be able to say that the price you see is the price you’re going to pay.”
Meanwhile, Commerce Minister Simpson said there is a clear international move towards banning surcharges.
“Similar bans are already in place in the United Kingdom and Europe, and the Reserve Bank of Australia has recently proposed banning surcharges on Visa and Mastercard debit and credit cards,” Simpson said.
“Overseas precedent shows that a ban on payment surcharges works, and there is no reason for New Zealand to be an anomaly. Aligning with international comparators also provides consistency for global businesses and tourists, ensuring that New Zealanders and tourists alike face clear and fair pricing.”
Simpson also challenged the assertion made in the open letter that excessive surcharging is already prohibited.
He noted that there is no explicit prohibition of excessive surcharging in legislation, and the existing protections in the Fair Trading Act 1986 for false and misleading representations as to the price of goods or services can be difficult to apply to surcharges.
He said he acknowledged the surcharge ban may have an increased impact on small businesses operating on tight margins, but said the largest component of businesses’ payment fees would drop significantly because of the Commerce Commission’s decision to reduce interchange fees from December 1 this year.
Businesses are expected to save as much as $90 million a year, on top of savings of $140m from previous interchange caps in 2022.
Simpson also acknowledged the concerns that banning surcharges could shift costs on to consumers who use low-cost payment methods, as well as the risk of higher prices for consumers, but said that international experience has not shown a clear link between surcharge bans and price inflation.
“What the ban does provide is greater transparency and certainty for consumers. The price you see on the shelf is the price they pay, regardless of how you choose to pay. Additionally, open banking is on the way and will enable fintechs to disrupt the market and provide lower-cost and safer payment options to businesses and consumers.”
“Fundamentally, the Government’s position is that the price consumers see on the shelf should be the price they pay at the check-out. This was the status quo for many years in New Zealand, and the surcharge ban brings us full circle.”
The Retail Payment System (Ban on Merchant Surcharges) Amendment Bill passed its first reading on September 17.
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.