NZ's biggest payments operator warns the groundbreaking free Eftpos network is under threat, and its attempts to set up a contactless digital 'card' have been blocked by outdated rules that favour global heavyweights Visa and Mastercard
As Costco prepared to open its first warehouse in New Zealand, it advised on its website that it would accept only Mastercard for online purchases. Shoppers were frustrated, and said so loudly on social media – and very quickly, the bulk retailer changed its position.
Country manager Patrick Noone says they had always planned to make more payment options available. "Costco's intention is always to offer any payment options that make sense for our members," he tells Newsroom. "Although we were still in negotiations with Visa at the time, we knew that we could at least start servicing New Zealanders in the meantime with Mastercard."
The reaction highlights the public expectation that New Zealanders should have options in how they pay for their purchases. But increasingly, Visa and Mastercard are cornering the payments market with their contactless cards – and the Commerce Commission has now been warned that the groundbreaking free Eftpos network is under threat.
Already, cheques are gone. The Reserve Bank is working on solutions to forestall the death of cash, still critical to some remote communities and those who struggle with technology. Free Eftpos and other non-chip cards are being swamped by contactless cards, despite the heavy fees charged to merchants and ultimately passed on to shoppers.
This week, the Commerce Commission has published submissions on its new regulatory powers to cap the credit card interchange fees that affect retailers so heavily, and to crack down on merchants such as airlines and event ticketing firms that charge disproportionate surcharges on card payments.
New Zealand has two internationally owned companies – Worldline and Verifone – that operate the electronic payments network for Eftpos, debit and credit cards.
Worldline, previously known as Paymark, has warned the commission of a danger to consumers if it doesn't regulate the companies effectively. The new fee cap starts on November 13, despite pushback from the big credit card companies.
Julia Nicol, Worldline's head of public affairs, says she's seen a cafe in a holiday town on the Coromandel Peninsula charging a $2 flat fee for all contactless transactions. Online, she says, there is an even greater disparity between merchant service fees and the surcharges imposed on purchases such as airline tickets.
Her company's submission to the Commerce Commission warns that capping interchange fees may not be enough – around the world, banks have responded to similar caps by simply raising other fees that aren't regulated. The credit card schemes set interchange fees that banks charge each other, and then pass on to retailers in fees that some small stores and cafes say can be thousands of dollars a year. Some feel forced to impose a surcharge on card payments – but the law requires that must be proportionate to the actual fee charge by the bank.
"Merchants may not see a dramatic reduction in fees, as issuers may seek to recover revenue lost from the regulated cards via those that are unregulated," Worldline says in its submission.
"Eftpos, or a modern local equivalent, is necessary for effective competition. It is vital that a modern domestic debit solution is put in place before the banks stop issuing traditional Eftpos cards altogether."
Other countries whose payments industries were dominated by Visa and Mastercard have been forced to create competitive local alternatives; New Zealand shouldn't risk losing the one it already has.
"Low-cost Eftpos transactions are being displaced by high-cost contactless debit transactions resulting in a reduction of competition and millions of dollars being spent on unnecessary fees by merchants, which are ultimately borne by consumers."
Worldline reveals it has been developing its own contactless payment 'card' that does not rely on the Visa or Mastercard schemes –ultimately it could be carried in a consumer's digital wallet on their device, rather than printed on plastic.
"These products have the potential to compete with the schemes, but industry and regulatory support is crucial if we are to have broad market adoption."
New digital wallets must be better than existing contactless cards. "They will save time for consumers and merchants: no more loyalty cards, no coffee punch card, no driver’s licence, no library card. Everything can be sorted with a single transaction, without consumers having to carry around paper-based items or retailers having to buy or install any additional hardware.
"We want merchants to be able to process transactions more cost-effectively and seamlessly without being shackled to international brands such as Apple, Google, Mastercard or Visa."
That's why Worldline is trying to develop a low-fee contactless domestic debit card, distinct from Visa and Mastercard. It's talking with Payments NZ, which sets the rules for New Zealand's payments networks, about changing an outdated rule that prohibits contactless transactions from going direct to a card's issuer for authorisation; rather, they are required to go to the credit card scheme.
"This rule needs to be changed if we are truly serious about increasing competition in payments. If we can have a contactless Eftpos card, we can tokenise it and transfer the card into a digital wallet. Allowing consumers to tap their phones on terminals to pay, directly from their bank account, should also reduce or eliminate the surcharging."
Visa, Mastercard and the banks are accepting the new fee cap and Commerce Commission regulation only begrudgingly.
Already, the banks have begun trimming back the credit card rewards programmes offered to consumers, to avoid reduced margins from interchange fees – even though bank submissions reveal these "marketing incentives" are often paid for by the credit card companies, to build their customer base and revenues.
In Mastercard's submission, country manager Ruth Riviere warns the commission against 'creating uncertainty on spending' that might hamper innovation and security measures by payment schemes.
The cost of lower fees will be passed onto consumers, she says, in the form of reduced cardholder benefits, slowed product innovation, or increased account costs.
Visa NZ country manager Anthony Watson says, in his submission, that the company shares New Zealand’s objective of ensuring that the country has a modern and fair retail payments system that benefits consumers and businesses. He too says consumer choice must be accompanied by a regulatory regime that fosters continuous security and innovation.
Both credit card companies acknowledge the new interchange fee cap is coming into force next month, like it or not, but they ask for a few months to adjust their operations to ensure compliance.
