1.1 This submission in response to the Commerce Commission’s Consultation Paper Retail Payment System: Costs to businesses and consumers of card payments in Aotearoa New Zealand1 is made by The New Zealand Initiative (the Initiative), a think tank supported primarily by major New Zealand businesses. In combination, our members employ more than 150,000 people.
1.2 The Initiative undertakes research that contributes to the development of sound public policies in New Zealand and the creation of a competitive, open and dynamic economy and a free, prosperous, fair and cohesive society.
1.3 The Initiative’s members span the breadth of the New Zealand economy, including Mastercard, banks that issue credit and debit cards, and merchants that accept those cards. However, the views expressed in this submission are the views of the author, not those of our members.
1.4 In summary, we submit:
(a) New Zealand differs substantially from markets in which surcharges are prohibited. The ability to set surcharges for credit card acceptance materially affects results.
(b) Merchant inability to perfectly set surcharges does not make a case for banning surcharges above 0.7%. If a merchant were not perfectly able to apportion electricity costs across every customer and instead used rough-and-ready rules, we would not expect that to be sufficient basis for comprehensive price controls in the electricity sector.
(c) The Commission understates the value of ancillary services provided by card schemes, particularly the value of insurance on transactions. It is difficult to understand how the Commission would take a view that “there should be no difference between the interchange fees for credit and debit transaction” unless no value is placed on the extra services provided to the consumer when credit cards are used for transactions.
(d) The Commission’s analysis needs to more seriously consider market dynamics where retailers can choose whether to accept credit cards (where EFTPOS cards are ubiquitous) and whether to set surcharges on credit card use (where customers can choose to use EFTPOS instead if they wish), where consumers can weigh the relative advantages of each payment method on a transaction-by-transaction basis, and where credit card companies can vary merchant fees across different merchants. If the value of ancillary services like insurance varies across retailers, we should expect fees to vary. In areas where chargeback risks are high, service fees will be higher.
(e) The Commission ought to worry about the harm it could inadvertently cause if it sets maximum interchange fees below the cost of delivering services that consumers and merchants find to provide net value. The cost of payments could reduce, but with increases in the overall cost of transactions where card services had been valuable (and if consumers seek secondary providers of services that had been bundled with credit card transactions) or with other reductions in overall welfare (if the transaction cost of arranging those previously-bundled services is prohibitive).
