Retailers to save $74m with contactless fee changes

Steven Greer from Scope Cafe says the fees for payWave are huge. Photo / Andrew Warner

Customers' love affair with contactless payment services such as payWave continues to gather momentum as technology advances. But surcharges and fees are making some people see red. Credit card swipes and contactless payment transactions cost Kiwis double or sometimes triple the amount in fees compared with charges in Australia and the UK. All that is about to change and merchants are expected to reap savings of about $74 million a year, as Carmen Hall reports.

Some restaurants are paying up to $60,000 a year in merchant fees for Visa, MasterCard and other contactless payment transactions, but all that is about to change.

On November 13, these charges will reduce and while that move has been welcomed, some businesspeople in the sector are calling for more change.

The Government says "retail payments are processed using complex network infrastructure, technology and arrangements". It was also difficult to get an accurate picture of what merchants are paying because the information was commercially sensitive and not publicly available, it said in a statement.

Dana Greer, from Scope Cafe in Rotorua, said in her view the cost of using payWave at her store was "ridiculous".

Popularity had exploded due to customers using their phones and smartwatches.

"We could not have it and if we didn't, it would have a big impact."

Husband Steven said bills for the service had reached a better part of $1000 a month.

"When you put that into perspective over a year, that is a lot of money and it doesn't include other merchant fees."

Harbourside Restaurant owner Peter Ward. Photo / Emma Houpt

Harbourside Restaurant owner Peter Ward said the merchant system was confusing and he was not sure if there would be any savings for his business with the changes.

"I don't think there will be, to be honest, but I'll just have to wait and see. The fees are huge and it is a big weight on the business."

Ward did not pass those charges on to customers because it did not feel right, but absorbing the costs was tough. His fees varied under different bands, but on average it was about 2.29 per cent a transaction.

Since Covid, the popularity of contactless payment had also ballooned with 80 to 90 per cent of customers using it.

"I had contemplated getting rid of it, but my staff said that would have a negative effect on the business so I haven't."

Restaurateur Josh Fitzgerald. Photo / File

Tauranga restaurateur Josh Fitzgerald said the savings would benefit customers because most businesses in the industry passed on the credit card fee.

"We also pay for a lot of our bills like the power or other things with a credit card. Often we get charged 1.5 or 2 per cent and it varies from company to company.

"So it will reduce the cost of doing business."

He said contactless was pretty popular and 60 to 70 per cent of people would rather use a contactless payment transaction than swipe their card.

Tauranga Business Chamber chief executive Matt Cowley said technology was advancing and feedback suggested merchant fees were unjustifiably excessive.

"People struggle to comprehend the costs when they liken payWave technology to security swipe cards that are common in modern buildings. Taking another percentage of sale, in addition to the credit card processing fee, is only adding to inflated costs for retailers, who often absorb the fees."

Tauranga Business Chamber chief executive Matt Cowley. Photo / Mead Norton

Small businesses would prefer customers used eftpos where they can to avoid the additional fees triggered by using contactless payment transactions.

"Unfortunately, that is largely out of their control. Some retailers do not accept credit cards (common in dairies), or they add the fees on top of the purchase price so the customer directly pays.

"This can create some friction with customers. Overall, the amount of cash going through the tills is declining across New Zealand."

Restaurant Association chief executive Marisa Bidois said profit margins were tight and the increase in the cost of doing business continued to grow.

"Merchant fees have been a hot topic of discussion over recent years and continue today. The fees charged to businesses quickly add up to be a significant cost to a business."

Depending on the number of transactions and the cost per transaction, these fees can be anywhere from $5000 to $60,000-plus annually, she said.

Even with the upcoming changes, it was still a high cost and it was absolutely imperative they fell in line with other markets.

Marisa Bidois, chief executive of the Restaurant Association. Photo / Supplied

"These new regulations will only apply to domestic Visa and MasterCard cards and will not apply to international cards. Fees for some of these cards will be as high as 2.75 per cent. We would like to see these charges reduced for business.''

Retail NZ chief executive Greg Harford. Photo / Mark Mitchell

Retail NZ chief executive Greg Harford said the fees could be high and were a real issue for businesses.

Fees were mostly incorporated into general pricing so "effectively, this means that all customers are subsidising rewards programmes for credit card users."

Customers "love" payment methods such as payWave and there was increased demand.

Some businesses surcharged to cover the merchant fees, but it was uncommon in retail. It's more often found in hospitality, tourism and ticketing businesses, he said.

Retail payments are highly dynamic and continue to evolve

A Ministry of Business, Innovation and Employment spokeswoman said the Retail Payment System Act enabled the Commerce Commission to intervene using a broad suite of powers to monitor and regulate participants in the retail payment system.

Visa and MasterCard had until November 13 to comply with pricing standards.

The reduction in fees was expected to save merchants about $74 million a year.

"Once the full regulatory regime is in place, we expect merchants and consumers will see even greater benefits."

Evidence during the consultation period shows fees for some card payments are nearly double compared with Australia, and smaller businesses were disproportionately affected.

She said the ministry understood the interchange fees for most merchant categories were much higher than the maximum caps in the initial pricing standard, particularly for credit cards.

"We estimate that a cap of 0.8 per cent on interchange fees for credit card transactions will equate to about a 20 per cent reduction on total fees paid. A cap of 0.6 per cent on interchange fees for online debit card transactions will be about a 30 per cent reduction on total fees paid."

Commerce and Consumer Affairs Minister David Clark said the commission had a range of powers to directly regulate designated networks.

It could set price limits, and impose access requirements to facilitate competition and greater transparency.

"The act enables the commission to take a systems approach to the issues we see arising, such as higher fees for merchants for payment methods like payWave or oversight of mobile wallets like phones or watches. Retail payments are highly dynamic and continue to evolve in response to changing preferences and technology."

Consumer chief executive Jon Duffy said the organisation had received complaints from members about credit card transaction fees in general.

A retailer contacted it last week and was upset about the fees being applied to contactless payments, particularly how the fee is applied to transactions under $80.

He said it would expect a retailer to tell their customers about extra charges for using eftpos, contactless or a credit card, and could be in breach of the Fair Trading Act if they didn't.

In Australia and the UK, the total merchant service fees were typically less than 1 per cent for each transaction.

In New Zealand, the cost for accepting card payments can be 1-4 per cent, with an average of about 1.6 per cent, Duffy said.

Banks take compliance obligations seriously

New Zealand Bankers' Association chief executive Roger Beaumont said the Government had capped Interchange, which made up a large part of merchant service fees.

"Banks operate in a highly regulated environment and take their compliance obligations very seriously, including this cap. We can't comment on competitive issues, including pricing and the products and services offered by our member banks."

The NZBA has 18 banks as members, including the four major Australian-owned banks, as well as Kiwibank, SBS, Co-operative and TSB.

A Kiwibank spokeswoman said its default pricing methodology for Merchant Service Fees was Interchange Plus.

An ANZ spokeswoman said it was in full support of the Retail Payment System Act, which would bring cost savings for most retailers.

It had seen an increase in customers choosing to pay with contactless debit, and anticipated the trend would continue to grow.

Merchant fees for Visa and MasterCard depended on the merchant and the mix of cards they accepted, processing method, average sale size and turnover.

She said it charged a maximum of 0.7 per cent for Visa and MasterCard Domestic debit contactless transactions for ANZ merchant customers.

Any surcharging that is applied by the merchant should be reflective of the costs incurred for that transaction and be disclosed to customers prior to payment.

A Visa spokesperson said it supports the ongoing development of a secure, efficient, competitive, and innovative retail payments ecosystem for the benefit of all participants – consumers and businesses.

"We look forward to continuing our work with the Government, regulators and industry to respond to the changing economic environment and to help shape new, digital-focused ways of driving future growth for businesses and the economy."

Visa was not a bank and does not set fees for consumers or merchants.

A MasterCard spokesperson said it had been working with the Government to implement changes that address merchants' concerns through the Retail Payment System Act, with the changes coming into effect mid-November.

"The Government is clear that these changes should result in lower costs of acceptance for merchants. If a merchant still does not feel like they are seeing the benefit, we encourage them to speak to their bank, who is ultimately responsible for setting their payment costs."

"Globally, we have seen a large shift in the number of consumers whose preference is to pay using contactless, and New Zealand is no different. Contactless payments help businesses more efficiently serve customers through faster queues and reduced cash handling, with those made on a MasterCard also benefiting from extensive anti-fraud protection provided through MasterCard's global payment network.

"Contactless acceptance also helps pave the way for emerging and increasingly secure payment methods like mobile payments, wearables and biometrics that are becoming mainstream in New Zealand."

Worldline said on its website the act reduces interchange fees, which was good news, but the interchange fee may make up only a small part of total merchant service fees, so the difference for many merchants would be slight.

The merchant service fee also includes processing fees from credit card networks and acquirer margins, which would differ from merchant to merchant.

PayWave has exploded in popularity. Photo / Emma Houpt

The fees explainer
* Fees paid by merchants to accept credit cards and some debit card payments (online and contactless) by customers are called "merchant service fees".

* The major cost component of any merchant service fee is the interchange fee charged by the customer's bank for processing the payment, typically about 70 to 80 per cent of the merchant service fee for credit card transactions.

* An interchange fee is a fee for processing a payment. It's charged by the consumer's bank (the card issuer) to the merchant's acquirer, who passes the cost on to the merchant. Banks rely on this fee in part to provide reward schemes and other inducements that consumers value.

* The Retail Payment System Act 2022 provides for the regulation of designated payment networks. It designates the MasterCard and Visa credit and debit card networks to be subject to regulation and includes an initial pricing standard that will come into force on November 13, 2022. - Source MBIE

The Retail Payment System Act

* Requires the Commerce Commission to monitor the retail payment system, and regulate designated retail payment networks, for the long-term benefit of New Zealand businesses and consumers who rely on it every day to buy and sell goods and services.

* Visa and MasterCard networks have initially been categorised as 'designated networks' by the act.

* Where a network is designated, this means the commission has powers to determine how prices can be set or expressed – an initial pricing standard has already been set under the act that limits interchange fees. It can also require greater transparency of certain information and allow other participants to access aspects of the network.

* The commission can issue merchant surcharging standards for any network to ensure surcharges for payment services such as credit cards or contactless payments reflect the actual cost of providing that payment option. - Source Commerce Commission