Kiwis are facing financial burdens due to surcharges on card payments, with estimates suggesting that they pay up to $90 million annually.
The Commerce Commission has stated that surcharges should be capped at 0.7% for contactless debit card transactions and 2% for credit card payments.
In December last year, ComCom announced a draft decision to reduce the fees businesses in New Zealand pay to accept Visa and Mastercard payments. This initiative is expected to simplify payment costs, lower surcharges, and reduce retail prices, benefiting both businesses and consumers nationwide.
“We’re proposing a reduction of around $260 million a year to the largest component of the fees charged to New Zealand businesses to receive Visa and Mastercard payments,” Commission Chair John Small said.
We’re also setting the clear expectation that payment providers and businesses should pass these savings on to customers.”
However, earlier this month, Consumer NZ expressed concerns that reduced interchange fees might not necessarily lead to lower surcharges for consumers. Instead, the organisation is advocating for stricter regulations or a complete ban on surcharges to ensure consumers are not unfairly charged.
Consumer NZ acting head of research and advocacy, Jessica Walker, characterised the state of surcharging in New Zealand as chaotic and disorganised. She said, “We have received hundreds of complaints showing merchants are not complying with the guidelines. It’s time to introduce new surcharge rules.”
Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene, highlighted that many people may overlook the significant impact a 2% credit card surcharge can have.
“A 2% credit card surcharge may seem small, but when capitalised on your monthly balance, it equates to an effective annualised cost of 26.82% – comparable to taking out a high-interest loan.”
“Many consumers overlook these charges, yet they can significantly eat into disposable income over time,” he said.
“Obviously, there’s not a surcharge on everything, but every purchase that has a surcharge, if it was 2%, is an effective interest rate of 26%. If you were to take out a loan with a 26% per annum interest rate, you’d be charged 2% a month.”
He noted that if someone fails to clear their balance monthly and is paying a typical low-interest rate of 13.95%, adding surcharges could result in an effective annual cost of 44.8%.
Sullivan also highlighted that some surcharges exceed 2%, reaching as high as 3%. “They’re designed to change people’s behaviour and make people think, ‘Why don’t I just press the cheque option and save myself the money?’ But with payWave and so forth, it makes it a bit more difficult.”
“I can understand retailers doing it,” Sullivan said.
If a business faces a 2.5% fee and operates with a 10% profit margin, it loses 25% of its profit unless the cost is passed on.
Sullivan said charges are already banned by some countries globally.