Consumers are rethinking the way they shop now that retailers are allowed to surcharge people paying by Mastercard and Visa – but some players in this high stakes game believe that a freeing of the market for payment systems will ultimately benefit shoppers.

Car owners being charged up to an extra 90c when buying petrol at some BP service stations are not feeling like they are the winners in this situation.

But regulators around the world are watching what happens next in New Zealand as the Commerce Commission, the competition regulator, tries to achieve a free market in the most fundamental of all markets – the market for payment systems.

Australia moved in 2003 to regulate by controlling so-called interchange fees between providers and allowing merchants to surcharge shoppers using credit cards.

Visa and Mastercard rules stopped merchants from passing on merchant service charges, of which about 80% are interchange fees.

The critics said all the Australian authorities achieved was a transfer of value to merchants.

"The ability for merchants to surcharge undermines the rationale for interchange regulation, which aims to configure retail payments according to underlying costs," the Australian Bankers Association has argued.

The critics also said that the regulation was arbitrary because there are no interchange fees in competing payment systems like cash and Eftpos.

Still, interchange fees have halved in Australia and are 0.5% compared with about 0.93% in New Zealand, according to New Zealand Retailers' Association chief executive John Albertson.

In New Zealand, consumers probably did not take much notice of a settlement between the commission and Visa, Mastercard and others last October. This set new arrangements for merchant service fees and interchange fees.

The settlement is coming into force between now and April and fees are expected to reduce.

Armies of lawyers were lined up for a lengthy court battle before the agreement.

Commission general counsel Peter Taylor said there was a lot of interest around the world in how the New Zealand approach worked out.

"It is not regulation. Everyone has to comply with the competition law. It has not been imposed. This is something they have agreed to do on a voluntary basis," he said.

"Internationally a number of agencies have been looking at how to deal with this issue. They are very interested to see how competition law has been applied here to address the issue."

The commission regarded the previous Mastercard and Visa rules as "evil" with inflated fees. The no surcharge provision meant that merchants could not bring pressure to bear to reduce charges.

The commission will now put on its "fair trading hat" as it also regulates fair trading law in this country.

"If you put on a surcharge to cover costs then that is what it must do. It would be misleading under the Fair Trading Act to use the surcharge to increase revenue," Mr Taylor said.

The goal of regulators is to remove anti-competitive behaviour and have a free market which transmits pricing signals that consumers can make choices on.

"Let's not forget that we're in such a price-driven market at the moment. As surcharges on credit cards become more commonplace those retailers not imposing them could have an instant competitive advantage," said Cameron Brewer, chief executive of the Newmarket Business Association.

The commission's Mr Taylor said people could decide if it was worth using the credit card or not. "We are agnostic."

He added: "What now happens depends the competitive positions adopted by banks, card schemes, retailers and how customers then respond to those initiatives."

The reality according to Mr Albertson was that the Reserve Bank of New Zealand and the commission had no power to regulate.

This is a bigger issue than shoppers realise. There are about $90 billion worth of affected transactions a year and an average merchant service fee is probably around 1.5%.

The commission has said merchants will save about $70-80 million over the next three years as a result of the settlement.

"If you get some costs driven out there will be better pricing. Ultimately there will be savings to consumers," Mr Taylor said.

Mr Albertson said that as merchant service fees reduce retailers will have less of an incentive to surcharge.

Visa has condemned the surcharges and Mastercard said today that it was opposed to excessive surcharging.

Mastercard reiterated the benefits of using cards, which include guaranteed and near immediate payment, the avoidance of cash handling, transport and pilferage costs, and incremental sales.

"It is well known that most consumers resent being surcharged and for this reason it has been banned in a number of countries. Moreover, by discouraging the use of electronic payments and forcing consumers to carry more cash, surcharging may aggravate societal problems such as crime and tax avoidance," Mastercard said.

Surcharging also implied wrongly that card purchases cost substantially more than cash transactions.

Studies have measured the retailers' cost of accepting cash at more than 2 percent of the transaction value, which is comparable to the retailer's cost for card transactions in most cases.

When one adds the societal costs of cash, card transactions are actually cheaper than cash, Mastercard said.

When you hand your credit card over a shop counter there are four participants in the transaction, you, your card provider or "issuer", the shop keeper, and the shop keeper's payment system provider known as the "acquirer."

All parties must have an incentive to facilitate the transaction, the Australian Bankers Association said in a submission on a review of the Australian system in 2008.