$2.6m credit card fee settlement will shake up retail transactions

The Commerce Commission has settled out of court with Visa in a deal that will change the fees charged on all retail transactions in New Zealand.

Visa has settled – unlike MasterCard, The Warehouse Financial Services in relation to MasterCard, ANZ National Bank, Bank of New Zealand, Westpac, ASB Bank, Kiwibank and TSB Bank – which are due to face the commission in an October High Court case over interchange fees.

Visa may have figured it was on a hiding to nothing when it decided to pay the commission $2.6 million toward its court costs, alongside offering a “pro-active solution” to the commission’s charges that Visa had been breaching the restrictive trade practices provisions of the Commerce Act.

The penalties for price-fixing are up to $10 million a breach, or either three times the commercial gain resulting from the breach, or 10% of a company’s turnover – whichever is higher, which makes Visa's settlement look like small change in comparison.

Visa – and all other major banks and credit card companies in New Zealand – clip the ticket on every card transaction usually to the tune of 1-5% but merchants are prohibited from passing these charges on to customers, so they must average out the cost of that fee across all their sales.

“This increases the cost of every item or service sold by businesses which accept Visa or MasterCard. All customers of those businesses bear that averaged fee, regardless of whether the customer pays by credit card, cash, eftpos or another payment method, the commission notes.

Visa’s settlement with the commission means that merchants will now be able to add surcharges to payments made by credit cards, along with being able to encourage customers to pay by other means.

The banks issuing credit cards will now be able to individually set the interchange rates that will apply to transactions using their credit cards, subject to maximum rates determined by Visa that will be publicly available.

The settlement also means you no longer have to be a bank to issue a credit card: non-bank organisations or companies who want to provide acquiring services to merchants are now allowed to join the Visa network as acquirers – if they meet the relevant criteria.

Commerce Commission chairman Mark Berry believes the changes will improve competition between companies that provide credit card services to retailers in New Zealand over time, saying that, “The commission considers this increased transparency will assist retailers and customers in making decisions about their payment choices.”

The 900,000 New Zealand Mastercards and 2.1 million Visa cards in circulation completed worldwide transactions totalling $19 billion in 2004.


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Looks like a good common sense win- considering the addiction to credit cards and the huge cost ot interest to consumers, this is a good result

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But will we see retailers reduce the cost to non credit card buyers?

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That's a very good questions, I do not believe any retailers will lower their price because of this. Retailers will charge seperatly when customer use their credit card. This will get more people to use other ways of payment instead.

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It will be interesting to see Amex's response to this. Many of the retaiiers that do not accept Amex cards are in that position because they can't meet the higher fees that Amex charge. If they are permitted to add the processing charge to the sale it probably will not be long before commission rates will fall. And that has to be a good outcome.

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Tonk - probably not.

I anticipate the prices remaining the same as current levels for debit and cash payments, however the surcharge will be added to those that choose to pay by credit card.

A lot of SME merchants I deal with, have taken the charges on the chin and not adjusted their overall pricing to accommodate for the MSF. Therefore they have cut their margin, predominantly to compete with the bigger players who get a cheaper MSF rate and drop their prices through economies of scale.

I am a little concerned that some merchants will use this to rort the system. E.g. A merchant could be paying 2% MSF, but charge the consumer 5%.

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Thanks commerce commision, this was the only way I avoided the ridiculous bank fees we get in NZ, and the primary reason I have a credit card.

Maybe we should just all go back to using cash.

I'd suggest merchants tread carefully, they want my cash more than I'll probably want their goods.

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I agree completely. I plan on avoiding merchants who try this on. failing that, Visas going to feel the pinch when I stop using my visa and start paying cash for everything that will cost them around 30,000 pa of my spending money in merchant fees lost. I have talked to others in my office we all agree!
I thought the idea was for shops to promote spending not constrain it.
Remember the old addage "the customers all ways right"?

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As a merchant we very much welcome this outcome. We sit in the same boat as customers. We all need banks and they have a monopoly for both merchants and customers.

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J - why pay fees at all? Anyone who is paying bank fees of any kind is with the wrong bank. With ASB, I don't pay any fees at all on my cheque account as long as all my transactions are electronic. EFTPOS, internet transfers, ATM, etc. The only time I'll ever attract a fee is if I visit a branch, which I never do.

Anyone banking with ANZ, National, Westpac et al and paying fees are getting what they deserve.

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A good time to buy shares in EFTPOS equipment suppliers. If I am faced with a surcharge if I pay by credit card, and no fee if I pay by Eftpos, there is little argument over which I will use. This will slash the credit cars firms turnover by a massive amount I bet!

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if they are taking more cash, the business's cash handling fees go up so they are paying to have that cash deposited at bank....not forgetting possibly the risk of holding more cash on premises

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This really is a dumb decision and will not benefit the consumer. It may benefit small businesses, but if large businesses now use this as an opportunity to pass these fees onto the consumer then really, the commision has made the consumers life worse not better. Ever form of payment has some cost. There are cash handling fees, direct and indirect. (you need to employ people to count it and prepare it for banking, you need to transport it to the bank, their may be deposit fees, not to forget the risk associated with handling cash from staff pilferage to robbery.) With cheques there is the risk of default, you need to employ people to follow-up on bounced cheques etc.

If real analysis is done you could well find that the service charged to sellers, is less than the costs of dealing with other forms of payment. Included in the total cost of goods are all the costs of doing business.

The Commision could have rather ensured that the rules that apply to determine the fee should be fair and transparent. It is right that big volume sellers pay less than small sellers, the rules of scale apply, but the process should be transparent. The commissions short sighted decision is protecting small (inefficient) business at the cost of the consumer and does nothing to promote competition and low prices for consumers.

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I only use my credit card for the airpoints. Cash here I come.

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Amazing information!!!!
Very informative!!!

<a href="http://www.financegenie.net/british-airways-credit-card-helping-you-get-... airways credit card</a>

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