ComCom settlement brings credit card competition
The Commerce Commission has settled with seven financial institutions over claims they breached the Commerce Act , That is likely to bring competition to New Zealand’s credit card industry – and possibly a charge for using your credit card.
The settlements – with ANZ National, ASB Bank, Westpac New Zealand, BNZ and Kiwibank/New Zealand Post, TSB Bank and The Warehouse Financial Services – came after deals reached in August with Visa and MasterCard.
The commission took the parties to court in 2006. It claimed they had breached the act by agreeing and implementing Visa and MasterCard credit card scheme rules that, among other things, provided for the payment of multilateral interchange fees.
(Interchange fees are charged to retailers for processing credit card transactions.)
The commission alleged these rules substantially lessened competition by artificially inflating the cost retailers bore for accepting credit card transactions and ultimately raising prices paid by consumers.
Commission chair Mark Berry said retailers would now benefit from new product offerings, and that interchange fees charged for transactions on their Visa or MasterCard (within New Zealand) would be lower on average.
That meant retailers could bring prices down, and Dr Berry expected they could save $70-80 million in fees in the next three years because of the settlements.
“This represents a significant reduction in the cost of doing business for retailers who offer credit card payment options, and we would expect to see this passed on to consumers over time through lower retail prices,” he said.
But the agreements also opened up the possibility of retailers surcharging customers for paying with their plastic, a practice usually prohibited in standard credit contracts.
Other terms of the agreements included:
• significantly reducing the average interchange fees charged on New Zealand credit card transactions and ensuring that these fees in New Zealand are driven downwards from the rates that were centrally set by the Visa and MasterCard schemes
• offering retailers the option of unblended service fees and enabling retailers to see the costs of accepting each scheme’s credit cards
• offering retailers the option of fully unbundled service fees and revealing the exact amount of interchange fees applicable to each card transaction, which should assist retailers to negotiate lower service fees and provide incentives to consumers to use their preferred payment methods
Each of the institutions would contribute towards a combined total of $1 million to cover the unmet costs of the commission’s proceedings, adding to the $5.6 million from the Visa and MasterCard settlements.
Dr Berry said the settlements would get the new competition within the credit card industry off "on the right foot".
“The significant fee reductions that will be delivered will [mean that] retailers and ultimately consumers will enjoy the tangible benefits of competition.”
The commission today applied to the High Court at Auckland to discontinue the proceedings against all parties.