The cost of providing contactless payments will fall on merchants. Photo / Andrey Mikhaylov
The Government is planning to ban merchants from adding surcharges to most in-store card payments.
The change will save shoppers, but cost merchants, who will need to absorb the cost of offering contactless payments or pass it onto customers by hiking prices.
The change is expected to be made by May next year.
It will apply to payments made in-store using Eftpos, Visa and Mastercard but won’t apply to purchases made online or with foreign-issued cards, prepaid gift or travel cards, and cards issued by networks like American Express or UnionPay.
Commerce and Consumer Affairs Minister Scott Simpson said: “Surcharges are a hassle and an unwelcome surprise when shoppers get to the till.
“That pesky note or sticker on the payment machine will become a thing of the past.
“We’re banning surcharges so consumers can shop with confidence knowing how much they will pay for their purchases.
“New Zealanders are paying up to $150 million in surcharges every year, including excessive surcharges of up to $65m. That’s money that could be saved or spent elsewhere.”
Simpson recognised the surcharges applied by merchants could be excessive and opaque.
“In some cases, the retailer doesn’t even make it clear what the percentage is,” he said.
He noted the surcharge ban would come in addition to the Commerce Commission reducing the interchange fees paid by businesses to accept Visa and Mastercard payments.
These make up about 60% of the service fees merchants pay. The recently announced change is expected to save businesses about $90m a year.
Simpson also expected the Commerce Commission to require banks to improve the way they provide payment cost information to businesses to help them negotiate better deals.
Legislative change will be required to enforce the surcharge ban.
The Retail Payment System (Ban on Surcharges) Amendment Bill is expected to be introduced by the end of this year.
The Commerce Commission will oversee enforcement of the ban. If businesses don’t comply, consumers will be entitled to a refund.
In the United Kingdom and across the European Union, surcharges for debit and credit cards for designated schemes are banned.
Australia currently has surcharging on debit and credit cards, but this must be no more than the cost to retailers of accepting these cards.
The Reserve Bank of Australia has recently proposed banning surcharges altogether for Eftpos, and for Visa and Mastercard debit and credit cards.
Stakeholders across the country have praised the Government’s move, although some industries have acknowledged the cost to business owners.
Retail NZ chief executive Carolyn Young said she was pleased the Government had listened to the group’s calls for changes in the system, calling retail payments a “contentious and complex area”.
She said removing surcharges from in-store purchases is a positive move for domestic consumers, but the wider issue of pricing would need to be considered.
“Retailers continue to face costs to accept debit and credit card payments and these costs will likely be added to product prices in future,” Young said.
“We will be seeking more detail on the surcharge changes, particularly around commercial credit cards which are not mentioned in today’s announcement, and possible future changes to online transactions.”
Hospitality NZ chief executive Steve Armitage echoed Young’s sentiment and said the move could result in increased costs being absorbed into general pricing for many hospitality businesses.
He explained that margins across the hospitality sector remain tight, and that small businesses may be unable to absorb the cost.
Dairy and Business Owners Group chair Ankit Bansal criticised the move, arguing the proposed changes unfairly target small retailers instead of addressing the real problem – the banks.
“Both consumers and small retailers are feeling the squeeze from high bank charges,” Bansal said.
“The reality is that large retailers enjoy significantly lower banking fees, while small businesses – with no power to negotiate – are left paying inflated rates."
He said small businesses often faced transaction fee differentials of more than 2%, creating a competitive disadvantage compared to large supermarkets and chains.
Bansal said the Dairy and Business Owners’ Group would request an urgent meeting with Simpson calling for policy changes that require banks to offer the same transaction fee terms to all businesses, regardless of their size.
But Consumer NZ’s acting head of research and advocacy Jessica Walker was thrilled to see the surcharges scrapped and called the move “a no-brainer”.
“We’ve received close to 300 complaints about excessive surcharges (over 2%) in the last few years. In some cases, card payment surcharges were as high as 25%. We’ve even had complaints about surcharges being applied to Eftpos transactions,” Walker said.
“We’ve been calling for surcharge regulation since 2017 and, recently, urged the Commerce Commission to consider an outright ban. Although surcharge guidelines were in place, they clearly weren’t working.”
However, Walker was disappointed that online payments would be excluded from the ban, arguing that since Australia is considering making online payments part of its surcharge ban, NZ should do the same.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.