The Commerce Commission has today published its draft decision to reduce interchange fees (Draft Decision) (see here). Interchange fees are a major component of the merchant service fees businesses pay when making or receiving card payments. The Commission considers a reduction in interchange fees could potentially save around $260 million a year in payment fees. Alongside its Draft Decision, the Commission has also proposed a new pricing standard (Draft Pricing Standard) (see here). If implemented, this would replace the current Initial Pricing Standard (IPS) that regulates interchange fees which was issued under the Retail Payment Systems Act 2022 (RPSA).

What does the Draft Decision propose?

The Draft Decision proposes to lower the current caps on interchange fees set by the IPS, and to expand the scope of these caps to transactions made in New Zealand using commercial and foreign-issued cards, which are currently not subject to the IPS. The Commission also proposes to introduce new anti-avoidance provisions based on the approach taken in Australia.

Why is the Commission seeking to reduce interchange fees?

The Commission considers New Zealanders are paying too much when making and receiving payments using Mastercard and Visa cards. The IPS was introduced to set a maximum limit on the interchange fee rates that banks could charge for these transactions. 

Why is the Commission proposing to expand the scope of interchange fee caps?

The Commission's Draft Decision proposes to regulate interchange fees for commercial transactions as it does not consider there is sufficient evidence to justify a differentiation between commercial and personal card transactions. Additionally, given commercial credit products aren't subject to the Credit Contracts and Consumer Finance Act 2003, the Commission considers that banks issuing these products can recover their costs from sources other than interchange fees. The Draft Decision also proposes higher interchange rates for foreign-issued cards due to their higher fraud incidence and associated prevention costs compared to domestically issued cards.

Proposed level of interchange fees

Proposed anti-avoidance provisions

The Draft Decision includes a proposal for new anti-avoidance provisions, based on the approach taken in Australia. These proposed anti-avoidance provisions would prevent an issuing bank from receiving benefits from Visa or Mastercard which exceed the issuer’s payments to the scheme. This is intended to provide greater certainty by making assessment of compliance more of a mathematical exercise.

Commission will be considering surcharging regulation in 2025

The Commission has expressed concerns about excessive surcharging practices which necessitates regulation. Consultation on surcharging regulation is expected to take place in the new year. If the Draft Pricing Standard to reduce and simplify interchange fees is implemented, the Commission expects this will lower both merchant service fees and the surcharge rates charged to consumers.

The Draft Decision invites feedback on the following options to address excessive surcharging: 

• A maximum surcharge based on average merchant service fees.
• A maximum surcharge based on average merchant service fees unless merchants display certification from their acquiring bank setting out their own average merchant service fee. 
• Any surcharge to require the display of a certificate from the business’ acquiring bank showing the business’ average merchant service fee.
• A requirement for terminal providers to sight evidence of a merchant’s average merchant service fee prior to uploading a surcharging rate higher than the average.

Next steps

Feedback on the Draft Decision and Draft Pricing Standard are due on 5pm Tuesday, 18 February 2025. Following this, the Commission will issue a final pricing standard and its reasons for its decision. The Draft Decision indicates that the final decision is expected to be issued in Q2 2025, with the new interchange fee caps to be in place by 1 November 2025.

The Commission is moving swiftly in trying to implement further regulation of interchange fees. It also plans to consult on proposed surcharging regulations shortly. We encourage interested parties to use this opportunity to provide feedback on the Commission’s proposals.

If you have any questions in relation to the Draft Decision or need assistance with submitting your views, please reach out to our experts who are experienced in this rapidly changing area of law.