The New Zealand Commerce Commission (the Commission) has published its Final Decision and Reasons Paper on Interchange Fee Regulation for Visa and Mastercard Networks (Final Decision Paper).
Key Decisions and Changes to the Current Position
The Commission's final decision introduces a new pricing standard that builds upon the initial pricing standard introduced in November 2022. The core objective is to further reduce the burden on merchants and consumers of high interchange fees, which currently account for approximately $600 million of the $1 billion New Zealand businesses pay annually to accept Mastercard and Visa payments.
The Commission anticipates that these new regulations will lead to a further annual saving of $100 million in interchange fees, which is additional to the estimated total annual savings of $160 million since the initial pricing standard was introduced in November 2022. The Commission expects that these savings will ease upward pressure on retail prices and reduce surcharging levels.
Key changes to interchange fee caps include:
- Domestic personal debit: No changes to the existing caps (0.00% for in-person contacted, 0.20% for in-person contactless, and 0.60% for online). The Commission maintained these to ensure sufficient margins for alternative payment providers and smaller issuer banks to compete.
- Domestic personal credit:
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In-person: Reduced from 0.80% to 0.30%. This reflects a 0.10% premium over the debit rate, aligning with international benchmarks and accounting for issuer costs and merchant/cardholder benefits.
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Online: Reduced from 0.80% to 0.70%. This maintains a 0.40% premium over in-person online debit transactions, acknowledging higher fraud risks and other costs associated with online payments.
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- Foreign-issued cards (new caps): Interchange fees for foreign-issued cards, previously unregulated, will now be capped:
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In-person: 0.60% for debit (including prepaid) and 0.70% for personal credit.
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Online: 1.40% for debit (including prepaid) and 1.50% for personal credit.
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These new caps are generally higher than those in comparable jurisdictions like the EU, reflecting New Zealand's unique market context, including higher fraud risks for foreign-issued and online transactions, and the benefits merchants gain from accepting international cards.
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- Commercial credit cards (domestic & foreign-issued): Interchange fees for commercial credit cards will remain uncapped at this time. While the Commission believes these fees are excessive, further analysis and information gathering are required to determine appropriate cap levels. Future consultation is possible if fees do not decrease significantly.
- Domestic prepaid cards: Will remain uncapped to support competition and innovation, particularly for fintechs and new entrant banks, given their current low transaction volume and value.
- Anti-avoidance measures: A new mathematical 'ceiling' on issuer compensation has been introduced to replace the previous 'purpose test'. This aims to prevent schemes from offsetting interchange fee reductions by increasing other fees to issuers, thereby ensuring the benefits are passed through to merchants and consumers.
Reserve Bank of Australia (RBA) proposals on merchant surcharges
The Commission and New Zealand card scheme participants will be closely watching the proposals outlined in the Reserve Bank of Australia (RBA) Consultation Paper on the Review of Merchant Card Payment Costs and Surcharging, also released last week. The RBA's current proposals indicate a more expansive and prescriptive approach to regulation of card scheme fees, which could signal the direction of travel for future Commission reviews. While both New Zealand and Australia are focused on reducing payment costs and enhancing efficiency, their approaches, particularly regarding surcharging, show notable differences.
Key RBA proposals for Australia:
- Surcharging: In New Zealand, the Retail Payment System Act (RPS) provides that the regulation of surcharging should aim to ensure that surcharges are no more than the cost to the merchant, with a view to regulating this to prevent excessive surcharging. Across the Tasman, a similar “no more than cost” rule applies to surcharging, but the RBA has signalled pivoting a de facto ban on surcharging. This would be achieved by revoking the current prohibition on 'no-surcharge' rules, effectively allowing card schemes to reintroduce rules that prevent merchants from surcharging. The RBA believes surcharging is no longer achieving its intended purpose of steering consumers to cheaper payment methods and the regulation of surcharges has become difficult to avoid or enforce. This move is projected to save Australian consumers around $1.2 billion annually in surcharges.
- Lowering interchange fee caps: The RBA also proposes to lower caps on domestic interchange fees and introduce caps on foreign interchange fees, similar to New Zealand's direction. However, the specific proposed rates and methodologies differ, reflecting each country's unique market dynamics and regulatory considerations. Interestingly, the RBA’s current position is that commercial and consumer credit cards do not warrant differential interchange treatment, despite many stakeholders advancing similar arguments to those advanced in New Zealand.
- Increased transparency: The RBA intends to require card networks and large acquirers to publish their fees, aiming to improve transparency and foster greater competition among payment service providers. The Commission acknowledges the importance of fee transparency for the purposes of enhancing efficiency and competition, but currently has no intention to directly regulate fee disclosure.
Next steps for the New Zealand sector
At least in the short-term, the Commission will proceed with decisions outlined in the Final Decision Paper. To support a smooth transition, the Commission has opted for a staggered implementation period:
- 1 December 2025: The revised domestic personal credit card caps and the new anti-avoidance methodology will take effect.
- 1 May 2026: The new interchange fee caps for foreign-issued cards will come into force.
The Commission expects acquirers and payment service providers to pass on the benefits of these reductions to merchants through lower merchant service fees, and subsequently, for merchants to pass these savings on to consumers through lower retail prices and/or reduced surcharges. Some market participants are sceptical of these outcomes, but the Commission will monitor compliance and pass-through post-implementation.
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