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The impact of debit cards and contactless on the retail sector

Auckland, Monday 17 October 2016

The rise of the contactless card, coupled with the introduction of debit cards, has seen a marked change in the way New Zealanders shop and interact with their own money.

Introduced early 2013 by the credit card companies, the use of contactless cards now accounts for 11.1% of the number of all card transactions through Paymark. The growth rate in the last twelve months has been 77%.

These cards come in two forms: a contactless credit card and a contactless debit card. The high growth reflects both more use of cards for payment and a shift from the more traditional non-contactless cards. While there has been some replacement of the traditional credit card with contactless credit cards, with a consequent reduction in the fee charged to the merchant, the net effect has been 6% fewer purchases on credit through Paymark in the last twelve months. This is being more than picked up by growth in the use of debit cards offered by the credit card schemes, both those with and without the contactless payment chip.

Card merchant fees and contactless

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Use of contactless is growing

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The share of transactions undertaken using EFTPOS is declining

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Contactless cards are provided through credit card companies and cost merchants 1.0% per transaction on average

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EFTPOS cards are provided by the NZ banks and merchants are charged no fee when used

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Merchant transaction fees could rise sharply if use of EFTPOS diminishes

The use of credit cards incurs a percentage fee to the merchant for each use, whereas the use of EFTPOS cards do not. However, the situation with debit cards offered by the credit card companies is not so clear cut. Debit cards used by either swiping the black stripe through a reader or by inserting the card into the terminal are treated as EFTPOS cards and do not incur a percentage fee, however debit cards that are used via the contactless terminal do incur a percentage fee – typically around 1% of the total transaction volume.

Retailers have expressed concern about these varying charges as shop managers have little control over the way customers use their debit cards in store. Retail NZ released a report into the fees retailers are charged and suggests if the move away from EFTPOS cards continues, there will be a significant cost to the retail industry and broader economy as a result.

Fee structure applied by merchants to customers

The 2016 survey by Retail NZ revealed the following average fees to merchants per transaction

Average Merchant Fees in NZ 2014 2015
EFTPOS 0.00% 0.00%
Contactless Debit 1.00% 1.00%
Visa/MasterCard Credit 1.40% 1.70%


Number of transactions (Paymark only)

The detailed results for September-September show EFTPOS volumes increasing slightly but the major volume increases were in contactless cards and in scheme (international credit card) debit cards. Traditional credit cards declined as card holders move to contactless cards as a replacement.

Volume of Transactions Sep 16 Sep 15 Growth Growth %
EFTPOS 36,861,211 36,718,481 142,730 Image of up arrow 0.40% Image of up arrow
Scheme Debit 31,346,903 28,928,507 2,418,396 Image of up arrow 8.40% Image of up arrow
Scheme Credit 17,575,977 18,329,627 -753,650 Image of down arrow -4.10% Image of down arrow
Scheme Debit - Contactless 7,739,318 3,730,686 4,008,632 Image of up arrow 107.50% Image of up arrow
Scheme Credit - Contactless 5,014,554 2,770,441 2,244,113 Image of up arrow 81.0% Image of up arrow
TOTAL VOLUME 98,537,963 90,477,742 8,060,221 Image of up arrow 8.9% Image of up arrow

As a proportion of all card transactions, EFTPOS declined over the 12 months from 40.8% to 38.2% while contactless card transactions increased from 6.7% to 11.1%.

Over a longer period of time, the number of EFTPOS transactions have declined slightly. This was largely due to a pickup in scheme debit cards in 2012-2014. The proportion of EFTPOS transactions was 59.4% in Jun-2012.

Transactions through Paymark per month

September Monthly Transaction Wrap Up

In September spending through Paymark rebounded sharply returning the annual underlying growth rate to the average of the first half of the year. Besides the strong growth in use of contactless cards, two other key driving forces exist at present, namely housing and tourism. All three driving forces appear likely to persist, suggesting further strong spending growth in the busy months ahead.

The annual underlying growth rate of spending through the Paymark electronic payments network was 7.5% in September, very near the 7.4% averaged in the first six months of 2016.

In seasonally adjusted terms, the jump from August to September was 2.0%, a marked step up from the 0.3% per month averaged in the previous three months.

The two key drivers of housing and tourism growth are well known now. In September, these forces showed up as strong annual growth of 9.2% amongst housing-related merchants and of 22.7% amongst accommodation merchants.

The accommodation sector growth is noteworthy as this is the strongest annual growth rate for any month in the last 10 years. Spending growth was high across motels, hotels and budget accommodation.

PAYMARK All Cards Data

Figure 5: Paymark All Cards data (September 2016 versus September 2015)

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  • Auckland/Northland
  • Waikato
  • BOP
  • Gisborne
  • Taranaki
  • Hawke's Bay
  • Wanganui
  • Palmerston North
  • Wairarapa
  • Wellington
  • Nelson
  • Marlborough
  • West Coast
  • Canterbury
  • South Canterbury
  • Otago
  • Southland

* Large clients moving to or from Paymark within last 12 months excluded from change calculation

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