Credit card fee changes highlight unfair costs

Otago Daily Times

3 days ago

New Zealanders continue to be ripped off by credit and debit card surcharges.
The issue was noted in passing when Civis complained a fortnight ago about misleading price advertising. It's time this week for Civis to get to grips with the gripe about surcharges.
Civis' indignation was spurred after being charged the equivalent of 3.94% for an online credit card fee.
While the actual extra amount for the shuttle bus was only a little more than $2, unjustified charges can soon add up to hundreds of dollars a year. Reacting becomes a matter of principle.
Businesses are making money not on goods or services provided, but via bonus income from their charging methods. That's not right.
Many businesses ignored commission "guidance" after high bank "interchange" fees were capped in 2022. Businesses were being charged up to 2.25% on credit cards and up to 1.5% on online debit card transactions. These were slashed to 0.8% and 0.6% respectively. The fee for contactless debit cards remains capped at 0.2%.
On Thursday, the commission cut the fees again on the dominant Visa and Mastercard credit card networks, from 0.8% to 0.3% for in-person transactions, and to 0.7% for online. Debit card fees didn't change.
The interchange fee makes up about 60% of what businesses pay as merchant fees. Although the earlier caps should have saved consumers about $140million, the commission estimates businesses failed to pass on $45m to $60m in savings.
The cuts announced this week should reduce business costs by another $90m.
It's reasonable that sellers then pass on fees to customers if they choose. Although individual costs are small, they can quickly accumulate for businesses as well.
Because eftpos doesn't attract direct costs, customers using that method need not, in effect, subsidise those paying with credit cards, contactless debit cards or Apple or Google Pay.
Many businesses, including supermarkets, absorb the costs. It's often cost-effective and more convenient to accept electronic payments than cash.
Customers must be informed of any surcharge before payment and be made aware of cheaper ways to pay, where available. This requirement is sometimes breached.
"We expect sellers to offer at least one payment method that does not incur a surcharge," the commission's website also says. The shuttle bus company had an alternative, though less convenient, way of paying directly. Even that option carried a small fee.
"We would expect any surcharges to be no more than 0.7% for contactless debit card payments or 1.5%-2% for credit card payments," the commission says. "Many merchants only have one rate, so we consider any surcharge above 2% is hard to justify."
Thanks to Thursday's decision, one would expect that 1.5% to 2% to come down further.
The commission said operating costs like staff, electricity and point-of-sale were general expenses and shouldn't be included in a surcharge. They were required regardless of the payment type.
Because the commission's "expect" and "should not" guidance is so often ignored, it's time for compulsion. On Thursday, the commission itself said regulation might be needed and that it would be monitoring the situation.
The banks and credit card companies were brought into line on interchange fees. Retailers must be, too.
The commission received 571 inquiries about surcharging in the past 18 months. It said concerns were managed case by case.
High interchange fees were an easy way for banks and credit card companies to make money, and they competed for customers through reward schemes. Many have been reviewed because excess profits were cut. Expect more to be ditched.
ASB advises merchants how to calculate a fair surcharge. It also notes: "Some payment methods do not incur costs, such as eftpos or debit cards that are accepted via insert or swipe, and so payment with these methods should not have a surcharge applied."
Amen to that.
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