The Commerce Commission will consider penalising merchants that impose unjustified payment surcharges – and the travel and ticketing industries could be first to face the music
Airlines, accommodation and ticketing firms offer scant information for their high card-payment surcharges.
The Government will set in place caps on bank-to-bank fees for contactless and credit card transactions from November. The Commerce Commission is conducting research on how merchants handle those fees – and the extent to which they pass them on to consumers.
Amid concern some retailers are passing on more than the typical 1-1.5 percent merchant services fees, that research will be completed before the end of the year. The commission wants to better understand merchant experiences with accepting payments, such as how they decide which payment types to accept, and how they impose surcharges.
Commissioner Dr John Small is leading the work to enforce new retail payments regulations. First focus is the big payment companies, especially Visa and Mastercard and capping the bank fees – and then the focus will move to merchants' card charges.
"Once those costs come down, we'll certainly be looking out for people who are using it as an opportunity to charge more than their cost."
The work has been given added momentum by the soaring cost of living, which means retailers (and ultimately consumers) face increased fees on their Visa, Mastercard and Paywave transactions. Swiped or inserted Eftpos transactions do not incur a charge.
"Surcharging tends to happen at places where merchants are either under extreme pressure, or they've got a bit of market power," Small says.
"Air New Zealand supports the Government’s commitment to reduce merchant service fees, as this is likely to have a positive impact on consumers and business, in particular small businesses." – Leanne Geraghty, Air NZ
It's the latter that concerns the commission most. "It will happen at the end of booking an air flight online, because you've gone through all that stuff to get there and, okay, now they impose the charge. Or you walk into a hotel, or you pay at the end of a taxi ride."
Small will sometimes take up his concerns with individual merchants. "I've been working on credit card interchange for over 20 years, starting in Australia at the time when they first regulated this interchange. So I can't resist, I'm interested when I go hotels – and yes, sometimes I engage with them."
Some merchants pass on the card fees by imposing a surcharge on those payments; others simply hike the prices on goods across the board. "To the extent that they suck it up and don't pass it on, there's a sense that's it's affecting everybody – whether you're carrying a card that attracts interchange fees, or an Eftpos card, or cash."
The new Retail Payment System Act empowers the commission to regulate merchant surcharging, which the commission will consider doing, but Small says greater transparency is also critical: "Sunlight is the best disinfectant."
"You don't want to go clonking in, making rules where the harm just doesn't justify it. One of the things that we will be looking at is the scale of the scale of harm." – Dr John Small, Commerce Commission
He says the commission is likely to be less concerned about surcharges charged by small retailers like corner dairies. "One of the key principles of being a good regulator is proportionality," he explains. "So you don't want to go clonking in, making rules where the harm just doesn't justify it. One of the things that we will be looking at is the scale of the scale of harm."
Retail NZ chief executive Greg Harford agrees some fees are too high – he says the rules clearly state merchants can't set a surcharge higher than their actual transaction cost. "It's probably not so much retailers doing that, as ticketing and hospitality. If you've got quite a sizeable market share, you shouldn't be charging 3 to 4 percent in processing credit card fees. It does seem odd that you've got businesses doing that."
Next week, the commission will publish draft guidance for the initial pricing standard of the new law. It will include interpretation of key provisions of the initial pricing standard, including net compensation and commercial credit payment products, as well as responsibility for compliance with the initial pricing standard.
Air NZ faces complaint over credit card fee
Consumer NZ says it received a complaint this year about Air New Zealand charging a $7.10 card fee, in May this year.
Newsroom researched the additional payment charges imposed on a trip from Auckland to Wellington, to take in a few shows.
• Air NZ now charges $2.80 per leg for a card payment fee. Looking a month or two ahead, there are one-way off-peak fares available for $100, so that works out at 2.8 percent, but a smaller proportion if one books a more expensive flight.
• Jetstar says it charges $5-$12.50 per booking. So the booking fee on that off-peak return trip comes to $10 on top of a $122 return fare – or an additional 8.2 percent.
• On top of the cheapest ticket ($69) to the Johnny Cash and June Carter Show at the Opera House, Ticketmaster quotes a $5 order-processing fee, a $1.50 compulsory levy and a $1.59 payment-processing fee.
• To go to international touring act the Sisters of Mercy at Victoria University of Wellington's Hunter Lounge, Ticketek will charge a $5.50 handling fee and a 2.55 percent payment-processing fee ($2.31), on top of the $85 entry. That payment processing fee is declared, but is not included in the online price.
• For the cheapest ticket ($35) to Krishnan's Dairy, at Soundings Theatre, iTicket will take an additional booking fee of $2.50 and a transaction fee of 94c.
• A studio apartment at the arbitrarily chosen Quest on Lambton will cost $162.22 on the night we've chosen, with an additional $24.33 in fees and taxes, whether one books through Expedia or Booking.com – but Booking.com applies an additional 2 percent charge ($3.73) for Visa or Mastercard payments.
"When you're a small company like us you can't get good merchant services rates because your volumes are low, so this will be more transparent, and that's good." – Reece Preston, iTicket
Air New Zealand's chief customer and sales officer Leanne Geraghty says the company supports the Government’s commitment to reduce merchant service fees. "This is likely to have a positive impact on consumers and business, in particular small businesses.
"Card payment fees collected from customers reflect the cost to process card payments, and all the card payment fees collected by Air New Zealand are passed back to the bank," she adds.
"Currently a flat fee is charged, so the percentage a customer pays varies depending on the fare value of the booking. However, as mentioned, the fee in its entirety is passed back to the bank.
"Customers also have the ability to pay using alternative methods that do not attract card payment fees, such as POLi, Airpoints Dollars, or cash if booking through a travel agent."
At iTicket, managing director Reece Preston welcomes the new regulatory regime. "When you're a small company like us you can't get good merchant services rates because your volumes are low, so this will be more transparent, and that's good."
He says the company's $2.50 fee is for its own business costs, and is not relevant to card transaction fees or government regulation. "The $0.94 in this example is the credit card transaction fee, which is relevant."
Banks charge more for online transactions, which are termed "cardholder not present", as these are classed as being more risky. And there are other costs to process a credit card transaction, including gateway click fees, fraud monitoring fees, security, payment card industry compliance costs, GST, chargeback costs, and international card payments incurring higher fees. "The small margin we make goes towards covering these additional costs."
Preston says merchant fees have been increasing consistently over the years. "We've always challenged the banks and other payment processors to do better but ultimately we haven't had any control over what we get charged.
"We support Government regulation on card transaction fees, like we see in Australia, so that we can ultimately pass on savings to clients and customers."
“The payments industry has never been more competitive than it is today. We compete every day across the robust set of payments options available to consumers." – Ruth Riviere, Mastercard
At the highest level, the interchange fees charged by the bank that issues a shopper's card, to the retailer's bank, is set by Visa or Mastercard. These are as much as 2 percent for Visa, and 2.25 percent for Mastercard. These fees are further topped up by the banks, when they are passed on to merchants – and the smallest retailers face the heftiest fees.
Newsroom has asked the credit card companies what they are doing to ensure they cannot fairly be accused of being part of a duopoly or cartel, as has been alleged here and overseas.
Also, the extent to which their revenues will be adversely impacted by the Government capping interchange fees – or whether they will in fact benefit as banks lower their fees, meaning more merchants will offer card transactions and more consumers will use them.
Visa public relations consultant Johnny Shaw declined to answer questions, saying the fees are a matter for the banks.
But Mastercard country manager Ruth Riviere issued a short statement.
“The payments industry has never been more competitive than it is today," she said. "We compete every day across the robust set of payments options available to consumers, from cash to several global and regional networks, and increasingly, buy now pay later providers, person-to-person and account-to-account services, real-time payments platforms, digital currencies, wallet providers, and other forms of payment.
"We embrace consumer choice and have embedded this concept into our own business strategy."
Dr Eric Crampton, for one, agrees that the two credit card firms don't act in New Zealand as a duopoly.
The NZ Initiative think tank economist says it's wrong to suggest retailers have no choice but to offer Visa and Mastercard. "If you consider the payments system overall, then you wouldn’t call Visa-Mastercard a duopoly. They have to compete with the Eftpos system."
It's easy to find merchants who say Eftpos-only, or have a piece of tape over the credit button, Crampton says. "They do that because the fees are trivially low or zero on Eftpos transactions, and because they judge that they save more in fees than they lose from customers who have a strong preference for using a credit card. You just have to walk around Lambton Quay."
It's difficult to say whether they have behaving as duopolists, he says. "If the card companies could force out and penalise merchants who set surcharges on card use, then you could start making a case – they’d have some power over merchants to pick at least one of them, and the cost of the charges would be spread at least somewhat to those who don’t. And I think at least in some countries the card companies were forced to allow merchants to apply surcharges."
BNZ has already lowered its merchant services fees to 1.5 percent, in anticipation of the interchange fee caps. Chief executive Dan Huggins says the bank is determined to do what it can to help small-to-medium businesses, which are hardest hit by transaction fees.
Other banks says they will lower theirs when the new regulatory caps on interchange fees come into effect in November.
"ANZ’s pricing model will allow automatic pass through of scheme interchange reductions when they come into effect in November," says the bank's external communications manager Kristy Martin. "We have actively been migrating merchants to this pricing model so they can enjoy the benefits of reduced fees in November."
Kiwibank external communications manager Kara Tait says: "Kiwibank’s default pricing methodology is interchange plus, so merchants will automatically get the benefit of reduced interchange rates when the new rates come in in November."
Westpac media relations adviser Annabel Olsen said that bank would announce pricing changes in the near future, in relation to the forthcoming capping of domestic interchange rates. "We regularly review the range of card payment options we make available to customers.”
ASB has not answered questions about lowering their merchant services fees.
