New Zealand’s competition regulator, the Commerce Commission (ComCom), has proposed new laws to regulate interchange fees and lower existing interchange fee caps for credit and debit card payments, likely to save Kiwis hundreds of millions in transaction surcharges.

The ComCom, in a newly released draft proposal paper, said the planned changes are designed to “promote competition and efficiency in the retail payment system for the long-term benefit of consumer and merchants”.

‘Merchant service fees’ are typically charged to businesses when accepting a Mastercard or Visa credit card payment, contactless payment, such as payWave, or online.

Based on data provided by Mastercard and Visa, interchange fees make up approximately 60 per cent (around $600 million) of the fees paid by New Zealand businesses for accepting Mastercard and Visa card payments – an impost typically passed on to consumers via surcharges or higher retail prices.

The regulations would apply to both commercial and foreign-issued card transactions (which ComCom notes are currently unregulated), and lower the current interchange fee caps for other transactions.

For instance, the proposed changes would force down the maximum interchange fee cap on domestic credit card payments from 0.8 per cent to 0.2 per cent, when transacted in-person, and halve the current fee of 0.8 per cent to 0.4 per cent for online transactions.

For ‘unregulated’ foreign-issued cards, a new interchange fee cap of 0.6 per cent and 1.15 per cent would be introduced for in-person and online payments, respectively.

Fees caps for domestic debit cards – which are currently capped at 0.0 per cent for in-person contacted payments, and 0.2 per cent for contactless payments – will remain unchanged.

ComCom estimates that businesses, and therefore by extension consumers, would save an average of $260 million annually should the regulator’s proposed interchange fee reductions be implemented.

Excessive surchaging

The imposed fee reduction also aims to snuff out excessive surcharging by businesses – where customers are charged payment fees higher than the average merchant service fee paid by the business itself – which the regulator suggests has been enabled through an opaque and complex merchant fee structure.

“Some businesses, whether due to finding it difficult to understand the fees they are being charged or because they seek to make a margin on their cost of payments, set their surcharges higher than the actual merchant services fees,” the ComCom wrote in its proposal paper.

“Excessive surcharging rates need to come down and with a further reduction in interchange fees our expectation is that surcharge rates should follow.

According to its estimates, New Zealanders spend approximately $45 to 65 million each year in excessive surcharges, with Mastercard itself calculating this cost at more than $90 million annually.

Effectively, the average surcharge rate is almost double the average merchant service fee for those businesses.

“Some small businesses are paying less than 1.5 per cent on average to accept Mastercard and Visa card payments, while others are paying over 2.5 per cent. The variability and complexity of these merchant fees can hinder appropriate surcharging,” the ComCom wrote.

While not part of the current consultation on fee caps, ComCom said it is “likely that some form of surcharging regulation will be needed, given the extent of excessive surcharging currently, even if this draft decision is implemented”.

The regulator said it expects to consult on surcharging regulation in the new year, considering options such as a maximum surcharge rate, requirements to display average merchant service fees and/or requiring terminal providers to sight evidence of average merchant service fees prior to uploading a surcharge rate to a terminal.

Commission chair Dr John Small said the proposed fee cap regulations would serve to “further reduce, and simplify, payment costs for New Zealand businesses, and to save merchants and consumers a considerable amount of money”.

The Commission is seeking feedback on the draft proposal before the 18 February 2025.