Officials warned the government that banning card payment surcharges could lead to higher prices and increased pressure on small businesses.
A few months ago, Commerce and Consumer Affairs Minister Scott Simpson announced the government’s intention to ban surcharges on most in-store payments.
The legislation is anticipated to be presented to Parliament before the end of the year. Surcharges on in-store payments will be prohibited by May 2026 at the latest.
However, officials from the Ministry of Business, Innovation and Employment (MBIE) cautioned that the ban could lead to potential issues. They also suggested restricting the ban to in-person debit card payments only, excluding credit cards.
Officials said surcharging can be effective, especially if it encourages consumers to choose lower-cost payment methods like eftpos or pressures payment schemes to reduce their fees.
The Commerce Commission is introducing new regulations for interchange fees, which are expected to lower the costs merchants have to pay.
“Surcharging also ensures that users of no-cost payment methods are not cross-subsidising users of higher-cost payment methods through paying higher prices for goods and services,” the Ministry of Business, Innovation and Employment said.
In a briefing, Visa and Mastercard had pushed for a surcharge ban, which is expected to boost demand for card payments using their networks.
Highlighted in the briefing was a major potential drawback, which was the weakening of price signals between payment methods, as there would be no way to incentivise using cheaper options.
“This could increase these merchants’ total payment costs of the same volume of sales.”
Prices might increase if shops that previously charged surcharges have to absorb the costs themselves.
“Consumers of these goods or services that use lower-cost payment methods would be partially cross-subsidising those that use higher-cost payment methods.”
Small businesses, which are less able than larger stores to absorb the costs, could face increased financial pressure.
They said Visa and Mastercard could further solidify their market dominance, and the surcharge ban might speed up eftpos’ decline.
It might also deter people from adopting new digital payment technologies.
They said the competition impact assessment struggled to pinpoint the specific effects of a surcharge ban.
“So much of the competition impacts are a function of the interchange fee caps that are already in place and subject to review by the commission… the effects of a ban will be concentrated and mainly fall on smaller business merchants in competitive, low-margin sectors.”
However, they said hidden fees would be eliminated, excessive surcharges tackled, compliance costs reduced, and rule enforcement simplified.