Merchant fees for credit and contactless debit cards are a big cost for business. Retail NZ has been campaigning for cheaper merchant fees for some time. The Government responded to this by passing the Retail Payment System Act 2022. However, more changes are needed to give retailers and customers greater transparency over the costs, and to ensure New Zealand stays up to date with international innovations in payments technology.
Under the Act, interchange payments are capped. Interchange payments are paid between a bank that processes a credit or debit card payment, and the bank that issues the customer’s card. Depending on the arrangements you have with your bank you will pay either a bundled rate for card transactions or you pay an ‘interchange plus’ rate, comprising an ‘acquiring fee’ plus interchange.
It’s good to know that, if you are on the special Retail NZ deal with Westpac, you are on ‘interchange plus’.
For most transactions, the Government has put caps on interchange as follows:
- 0.8% for Visa and Mastercard credit cards, or the rate that was in force on 1 April 2021 (whichever is lower);
- 0.2% for contactless Visa and Mastercard debit cards, or the rate that was in force on 1 April 2021 (unless the fee charged is a flat rate, in which case a five cent cap applies);
- 0.6% for Visa and Mastercard debit cards used online or via any other payment method;
- standard EFTPOS debit transactions, where the card is inserted and the customer accesses their debit account, remain free, with an interchange rate of zero.
The caps do not apply to international cards, commercial cards or prepaid cards. Cards issued by networks other than Visa and Mastercard (e.g. American Express and UnionPay) are outside the scope of the regulation.
The connection charges that you pay to providers like Worldline (previously Paymark) are also outside the scope of this regulation and will not change.
Customers love to pay contactlessly, and we recommend that you consider this. There is a cost, but it’s good to know that these might not be as large as you think. Even though there’s a fee for contactless debit, some credit card transactions are cheaper if you go contactless.
Some businesses do charge customers an extra fee if the transaction has a cost with it. However, customers don’t like surcharges and it can leave a bad taste in their mouths.
If you are going to apply a surcharge, then that surcharge needs to cover only the costs you are incurring. For example, you can’t charge a 5% surcharge if your bank is charging only 1%.
At this stage, the Government has chosen not to regulate Buy Now Pay Later services, so there are no changes to the rates for these services. Retail NZ will continue pushing for these services to be regulated.
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