Interchange fees in New Zealand may be slashed hard, if one of the preferred reform options outlined by the Commerce Commission ends up being adopted.
ComCom yesterday published a consultation paper on ‘Costs to businesses and consumers of card payments in Aotearoa NZ.’
It is the most meaningful examination of payments costs, especially interchange, undertaken in New Zealand for many years.
The consultation paper flirts with the notion of zero interchange, but tends to favour consolidating the multitude of present interchange rates in NZ payments at around 20 basis points, at least for domestic payments.
Twenty basis points compares with interchange of 80 bps on personal credit card payments at present, and as high as 2.20 per cent on commercial credit card payments.
ComCom proposed a rate of 1.15 per cent on international card payments, around half the current rates.
The Commerce Commission is on strong ground, agitating topics that challenge the business models of Mastercard and Visa and banks.
“Some interchange fee rates within New Zealand are materially higher than those observed in other countries such as Australia, the United Kingdom and the European Union, where regulation has lowered fees” the ComCom argued.
“We are not aware of any adverse impact from the lowering of interchange fees within those jurisdictions. This raises the question of whether interchange fee rates within New Zealand remain too high.
“We consider that reviewing the current interchange fee regulation may be necessary to promote competition and efficiency in the retail payment system. Reducing and simplifying interchange fee caps should reduce merchant service fees for merchants and reduce surcharging for consumers.
“Further interchange fee regulation could reduce interchange fees substantially.
“Assuming 90 per cent of these savings are passed through to merchants, merchant service fees could reduce by over NZ$250 million” the ComCom said – or around one quarter of the NZ$1 billion paid in merchant fees annually.
The ComCom expects that surcharges on card payments will fall as a result of any reforms.
The commission also voiced optimism that its eventual reforms “would change incentives and outcomes across the retail payment system.
“For example, it would encourage existing and potential issuers of payment instruments to innovate outside of the Mastercard and Visa ecosystems. This would increase payment options for merchants and consumers and increase competition and efficiency within the retail payment system.”