New Zealand’s retail payment system moves money from consumers to merchants – when you buy a coffee, it’s the system that transfers $5 from your account into the café’s. Within the retail payment system are networks like Visa, Mastercard and EFTPOS. Some of these, like EFTPOS, are fairly simple. Others, like the credit card networks, are a complex web of technical infrastructure, arrangements and standards.
The Retail Payment System Act 2022 (RPSA) came into force on 14 May, this year. Initially, it will only regulate the Visa and Mastercard systems and their interchange fees (fees that are paid by the merchant via the merchant’s bank to the cardholder’s bank). However, the RPSA also sets out a process for the Commerce Commission to monitor all the participants (banks, payment processors, Visa and Mastercard) in the retail payment system and empowers the Commission to direct changes to improve competition. The Commission is able to limit fees, change rules, set surcharging standards or open up access to networks.
Why has this new legislation been introduced?
Merchants in New Zealand pay high fees by international standards for Visa and Mastercard payments; the cost of accepting Visa and Mastercard payments is a significant overhead for local businesses (we have heard that it is the third highest cost after wages and rent) so the Government wants to reduce these fees. It also wants to promote competition in our retail payment systems, so new open banking products like Online EFTPOS can make transactions more affordable and provide choice to merchants and consumers.
How much will my fees drop?
The RPSA reduces interchange fees, which is good news, but the interchange fee may only make up a small part of your total merchant service fees, so the difference for many merchants will be slight. The merchant service fee also includes processing fees from credit card networks and acquirer margins, which will differ from merchant to merchant.
Here are the new interchange fees:
· Contact debit stays the same and remains at zero.
· Contactless debit is capped at 0.2% of transaction value, or a 5c flat fee, down from over 1%
· All credit (online, contact and contactless) is capped at 0.8% of transaction value, some were as high as 2%.
· Transactions using a debit card online are capped at 0.6% of transaction value, some were over 2%.
· Commercial credit cards are not regulated so will continue to attract high interchange fees, some are up to 2.25%.
In the future, it’s likely that the total transaction costs will drop further. The banks and credit card networks have six months to comply and for now, the Commerce Commission is focussing on how to monitor the new rates to ensure compliance with the new regulation.
What should merchants do right now?
It’s important that you understand how your fees are made up and what fees each type of card attracts. Credit cards with higher rewards currently have higher fees and we don’t yet know how this will translate into the new fees. You should find out:
· How much of your merchant service fee is going to Visa and Mastercard for processing?
· How much is going to your acquirer?
· Which card products are consumers using at your business?
· What is your average transaction value? (Insights, Worldline’s data analytics product has this information and is free if you are on the Worldline network.)
Once you know your payment profiles and costs, consider your next steps: Do you want to accept all cards? Why can’t you be charged for contactless debit only, if that’s the only card payment you want to accept? You may also need to consider any surcharging, as it’s likely to be regulated to reflect only your costs.
Questions for the future
There are some other important questions about transaction fees that we would like to see answered, including:
· Why do merchants have to accept commercial credit cards when they accept personal credit cards?
· Why can’t you process contactless debit via the local processing networks, like EFTPOS?
· Merchant service fees are not charged on contact debit, why is contactless debit different?
· Why can’t merchants chose to process transactions locally for contactless debit?
· Why are processing fees and the account costs charged as a percentage of transaction value? Should processing fees be flat or does the cost of processing change depending on the transaction value?
Hopefully in the future these irregularities and irrationalities can be sorted out by the RPSA. Once the Commerce Commission has fully implemented the new interchange fees, it’s likely to exercise its new powers more extensively.
We can help you find out more
We’re here to help if we can, so get in touch if you would like to learn more about how Insights can help. If you have questions about your fees or the types of card products used at your store, please contact your bank.