The Commerce Commission (Commission) has issued a consultation paper seeking views on the scope and level of interchange fees paid on the Mastercard and Visa networks. In announcing the consultation paper, the Commission stated that it considers the amount that businesses, and ultimately consumers, pay to use the networks is “too high” and that it sees potential to reduce fees significantly.
Since 13 November 2021, interchange fees for the Visa and Mastercard networks have been capped by the Initial Pricing Standard (IPS) under Schedule 1 of the Retail Payment System Act 2022 (RPSA). The Commission has been monitoring the performance of the retail payment system and is concerned that the interchange fee caps set by the IPS are “inefficiently high based on international benchmarks”.
How does the IPS regulate interchange fees?
The IPS sets a cap on total interchange fees for the Visa and Mastercard networks for credit retail payment networks and debit retail payment networks. The cap on total interchange fees for credit retail payment networks is the lower of:
- 0.80% per transaction; or
- the interchange fees per transaction as at 1 April 2021.
The cap on total interchange fees for debit retail payment networks is the lower of:
- the interchange fees per transaction as at 1 April 2021;
- in the case of any contacted-in-person payment method, 0.00% per transaction;
- in the case of any contactless-in-person payment method, 0.20% per transaction;
- in the case of any online or any other payment method, 0.60% per transaction; and
- if a contactless-in-person debit card interchange fee is charged by the cents (for example, a flat fee rather than a percentage of the transaction value), 5 cents per transaction.
The ‘total interchange fee’ includes both the actual interchange fee “plus any net compensation that can be reasonably attributed to a transaction”. ‘Net compensation’ is defined as the “net value of any payments, rebates, incentives, or other means of monetary and non-monetary compensation that are made after the date on which this [RPSA] Act receives the Royal assent and that have the purpose of compensating an issuer for the effect of this standard”.
Interpreting the definition of ‘net compensation’ has proven difficult for many stakeholders as evidenced by the numerous submissions made to the Commission on its guidance. The Commission’s consultation paper recognises this and states that the Commission is “also concerned about the way the net compensation provision is framed and would prefer it focus on effect rather than intent”. The Commission has invited views on the current operation of the ‘net compensation’ test.
What is the Commission seeking feedback on?
The Commission is seeking feedback on the following topics:
- the scope and level of interchange fees;
- refinements that could be made to the interchange fee caps, including further simplification, consideration for anti-avoidance measures and additional consideration of other unregulated networks; and
- other pricing and access issues (e.g., access and pricing of digital wallets such as Apple Pay and Google Pay) within New Zealand’s retail payment system and the materiality of those issues for competition and efficiency in the retail payment system.
The consultation paper explores different strategies the Commission is considering in further regulating interchange fees. For instance, the Commissions states a possible remedy to the issues raised is significantly lowering the interchange fee caps, and the consultation paper explores several approaches and methodologies including: using a cost-based approach like in Australia, adopting interchange fee caps from other jurisdictions where those fees are regulated, or setting interchange fees to zero.
We will be publishing a more detailed summary of the consultation paper in the coming days.
Why is it important to have your say?
The Commission has the power to revoke or replace the IPS which regulates interchange fees. As such, it is important that all stakeholders, including banks, payment providers and merchants, use this opportunity to provide feedback on the current regime, issues within the retail payment system and possible regulatory approaches before any regulatory steps are proposed and/or implemented by the Commission.
Submissions on the consultation paper are due by 4pm Tuesday, 20 August 2024. Interested parties can submit through the Commission’s template form or online survey, both of which are available on its website.
If you have any questions in relation to the consultation or how the RPSA and the IPS works in practice, please reach out to our experts who are experienced in this novel area of law that is expected to see further change.
Key contacts
Speak with one of our experts.
