Credit card deal could help shoppers

The settlement will be good for retailers, and maybe also for customers. Photo / Kenny Rodger

The way New Zealanders use credit cards could undergo a shift after a Commerce Commission settlement with banks over the fees they charge retailers.

The competition watchdog has reached an out-of-court agreement with seven financial institutions on how they will charge merchants for accepting credit cards.

It follows its deal with Visa and Mastercard last month that the credit card companies will no longer agree on the rules for the card system in this country, including the so-called interchange fees.

The commission said the old rules substantially lessened competition by artificially inflating the cost to retailers of taking credit cards.

Now it has reached agreements with ANZ National, ASB, Westpac, BNZ, Kiwibank, TSB Bank and The Warehouse Financial Services that effectively introduce a competitive market for interchange fees.

From next year Visa and Mastercard will set a lower maximum interchange fee - yet to be disclosed - and the banks can charge merchants anything up to that amount for processing credit card transactions.

Under the new rules, retailers will for the first time have the right to charge customers a surcharge for using their credit card.

Banks will also have to be much more transparent about the fees they charge retailers.

Commission chairman Mark Berry said it created a market where none existed before. It would save retailers $70 million to $80 million over three years which the commission expected to see passed on to consumers over time.

What this will mean for the credit-card-holding public has yet to play out.

"All we can do is fashion the rules so that competition unfolds," Dr Berry said. He did not believe many retailers would impose surcharges.

The Australian Reserve Bank forced interchange fees down in 2003 and there had not been an "outbreak of surcharging" in that country. Rather he expected retailers would use the threat of surcharges as a bargaining tool with the banks to get interchange rates down.

Mastercard's vice president for strategy, Albert Naffah, agreed Australian retailers typically did not put on a surcharge. "Where you do see it is where the cardholder has little choice but to pay it in areas where there is some sort of market power - airlines, telecommunications and utilities, perhaps even remote areas where you're the only store or [petrol station] for hundreds of kilometres."

However, he said there was no evidence that the Australian move to regulate fees - which saw them drop from 0.95 per cent of a transaction to 0.5 per cent - had benefited consumers.

He said the banks had made up the lost revenue by putting up other fees. "They watered down the benefits that cardholders got, whether it be the rewards points or the number of interest-free days."

But he conceded the drop in fees in this country would not be as dramatic as it was in Australia. "I think it's very difficult to comment on how it's going to pan out from a consumer or a merchant's perspective. It's a new chapter in the evolution of payment systems in New Zealand."

The Retailers Group - representing retailers such as the two major supermarket companies, Dick Smith, Farmers, Noel Leeming and Whitcoulls - had also taken action against Mastercard and announced yesterday it had settled.

Spokeswoman Louise Evans said it had been fighting for a competitive environment, and "within that framework it may not be necessary for a retailer to surcharge".

Cameron Brewer, chief executive of the Newmarket Business Association, said retailers would need to "tread carefully" on the issue.

"I suspect retailers considering a two-tier payment system may be more likely to promote a cash discount than a credit card surcharge."

ANZ National said it would move quickly to come to new arrangements with merchants.

Dr Berry said interchange fees were an issue worldwide and unlike other countries New Zealand had managed to reach a settlement without litigation or regulation. Authorities in the United States, Canada and South Africa had requested details about the New Zealand approach.

* Rule change

New Zealanders put $25 billion on their credit cards last year.

The Commerce Commission says new rules on the fees banks charge retailers for accepting cards will save $80 million over three years.

Currently banks charge around 1.2 per cent of a transaction's value - this will fall, and banks will compete.

Retailers will now be allowed to charge a surcharge for using a credit card.

It is not clear how all this will affect cardholders. Theoretically it will mean cheaper goods overall as retailers make savings.