Surcharges on the likes of PayWave card payments are set to become a thing of the past. Photo / Sharepix
A ban on credit, debit and contactless surcharges will force up prices and weaken competition, officials warned the Government.
It could also result in some retailers refusing to take credit cards at all, unwilling to pay large fees they can’t recoup.
Commerce and Consumer Affairs Minister Scott Simpson said it will make prices more transparent and give consumers more choice.
But Retail New Zealand chief executive Carolyn Young said it’s possible consumers could be worse off, as her organisation and 35 business groups around the country call for a halt to the changes.
Documents released this week by the Ministry of Business, Innovation and Employment show officials investigated three options to curb surcharges.
One was no law change and potential Commerce Commission regulation, the second was a law banning surcharges on debit cards only, and the third was a ban on credit and debit surcharges.
The third option, later adopted by the Government, was preferred by officials because it had the greatest “strengths and weaknesses”.
Officials found Kiwis pay $45 million to $65m a year in surcharges, while the average consumer pays about $35 each year.
Consumers are also often overcharged: the average surcharge costs double the fee paid by the merchant.
The ministry concluded removing surcharges from credit, debit and contactless payments would streamline the consumer experience.
But it also found a ban would cause “many merchants to respond by raising prices across all consumers”, as retailers would be forced to pick up the cost of the fees, especially from high-fee credit cards.
Smaller merchants would bear the brunt of that, struggling to absorb additional costs and “leaving them particularly exposed”.
It could mean some merchants might stop accepting credit cards entirely.
Officials also found a ban would impact competition among businesses.
Small businesses are paying fees as high as 2.5% when consumers use Visa or Mastercard cards, but larger businesses have greater negotiating power and often pay much lower fees.
“It is likely that the competitive position of smaller merchants will weaken relative to bigger competitors,” the briefing said.
The ban would also disproportionately target lower-income shoppers who pay with cash or Eftpos, who would effectively be subsidising those with reward-scheme credit cards that charge retailers higher fees.
The briefing said officials did not have time to consult with stakeholders.
Young said the ban would be inflationary because retailers may increase prices to cover the cost they’re going to be absorbing.
She said there’s been no consultation with the sector and questions what’s behind the swift change.
“[The advice goes] on to say the retail payment system is the most used financial service in New Zealand.
“If you’re making a change to the most used financial system in New Zealand and you aren’t consulting with the people that are most impacted by it, it feels that there’s something to hide here.
“It feels they’re leaning into the credit card companies, where obviously they’re going to get more transactions going through their switches.”
Young said consumers could be worse off under the Government’s changes.
“They’re looking to rush a piece of legislation through to provide benefits to consumers that they actually don’t know.
“They can’t quantify what those benefits are because they haven’t taken time to find out if retailers will increase prices due to increasing costs.”
Young also questioned whether this could hasten the death of Eftpos, as consumers will be more inclined to move to Visa and Mastercard as they won’t pay surcharges.
Newstalk ZB asked Simpson whether increased costs were acceptable – and if the warning around reduced competition aligns with the Government’s priority to increase competition.
He didn’t address the questions directly, instead sending a generic statement.
“Surcharges cost Kiwis up to $150m a year, with up to $65m of this being ‘overcharged’. We’re removing this cumbersome hidden cost for customers – the price on the shelf should be the price at the checkout.
“Around the world, other countries are banning surcharges. This move puts us in line with the United Kingdom and Europe, where surcharges are already banned.
“By the time the surcharging ban is in place, businesses will already be saving money from reduced banking fees, as announced by the Commerce Commission. This will save businesses up to $90m every year, on top of the $140m annual savings from 2022 fee caps.
“By banning surcharges, we can ensure these cost savings can be passed directly on to consumers.”
Ethan Griffiths is a political reporter with Newstalk ZB, based in the Parliamentary Press Gallery. He joined NZME as a print journalist in 2020, previously working as a general reporter in Whanganui and an Open Justice reporter in the Bay of Plenty and Wellington.