The Rising Cost of Payment Convenience
Research shows that Kiwis prefer to pay contactless, but with this comes surcharges on credit card and PayWave payments. Why do we pay so much just to pay a few seconds faster? Payments NZ says 28% of Kiwis only use contactless payments when there is no surcharge, double the 2022 rate. Surcharges are increasingly top-of-mind for consumers.
Why Do Businesses Charge Surcharges?
Security concerns and surcharge costs are the two most common reasons consumers prefer not to use contactless payments, according to Payments NZ’s 2024 Consumer Research report. Since the Retail Payment System Act 2022 set out guidelines for businesses to pass on the cost of accepting retail payments, mainly credit card network fees, it’s typical for retailers to pass a fee of around 1.5% of the purchase cost onto the consumer. Before then, businesses had to absorb the cost of accepting credit and contactless debit card payments themselves. These merchant service fees varied depending on the card used and the retailer’s negotiated rates.
Are Some Businesses Overcharging?
Smaller retailers often paid higher merchant fees to accept contactless payments. Without clear regulations on how much they could charge, recent headlines have shown firms charging surcharges as high as 8% on parking, 6.25% at the dentist, and 4% for a shuttle service. The Commerce Commission says that surcharges should be no more than the additional cost of accepting that particular payment method. The 2022 Act gave the ComCom the power to regulate and monitor these fees to ensure fair pricing.
What Are the Recommended Surcharge Limits?
“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.” To ensure transparency and fairness in how surcharges are applied, the Commerce Commission released a draft decision aimed at regulating excessive payment fees, which could save Kiwis over $260 million annually.
Can New Regulations Lower Costs for Consumers?
“This work is the next step to further reduce, and simplify, payment costs for New Zealand businesses and to save merchants and consumers a considerable amount of money,” says Commission chair John Small. They acknowledge that some retailers set a flat-rate surcharge well above their actual payment processing fees, effectively turning it into an extra charge for convenience rather than a necessary cost recovery.
How Are Businesses Responding?
While large corporations can negotiate lower rates with banks and payment providers, smaller businesses often face higher costs per transaction, making surcharges a way to stay competitive in a tight-margin environment. These small firms argue that absorbing transaction fees isn’t always feasible. “Businesses shouldn’t charge their customers more than what it costs them to accept a card payment. Unfortunately, as shoppers, we have no way of telling what businesses are getting charged, so it’s difficult to tell if we’re being ripped off,” said Jessica Walker, Consumer NZ campaigns manager.
Will Surcharges Disappear?
Some retailers have scrapped fees altogether amid growing public pressure for them to remove or at least reduce their surcharges. Others have shifted their pricing strategy, increasing overall prices slightly to compensate rather than tacking on an explicit surcharge. The Commerce Commission estimates Paywave takes hundreds of millions out of Kiwis’ pockets each year and will make moves to decrease this figure this year. They recommend merchants shop around for the bank that provides them with the best payment services.
Should You Avoid Contactless Payments?
In the meantime, consumers are left weighing convenience against cost. Is it worth paying extra for a tap-and-go transaction? Or will more people revert to using cash and EFTPOS to avoid these fees? One thing is certain: as digital payments continue to dominate, the debate over who should bear the cost isn’t going away anytime soon.
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