The bill introduces three key changes:
- It provides for “designation” of specific retail payment networks for regulation under the new regime. As an “initial designation” the bill provides that MasterCard and Visa credit and debit card networks will be designated.
- It sets an “initial pricing standard” that requires reductions in interchange fees for transactions on the MasterCard and Visa networks. Interchange fees are a major component of merchant service fees (i.e. fees paid by merchants to their acquirer – usually their bank – when their customers make credit or debit card payments).
- The bill also confers various functions and powers on the Commerce Commission (of which some apply to designated networks only, and others apply to all retail payment networks). These include new powers to issue merchant surcharging standards to limit excessive surcharging, and to monitor, investigate and enforce those standards.
The proposed changes are likely to be relevant to a range of interested parties (including small businesses, banks and other participants in the retail payment system).
The bill forms part of broader measures introduced by the Government to protect small businesses (see for example the recent enactment of new Unfair Contract Terms protections for small trade contracts, summarised here).
In 2020, the Government reviewed merchant service fees and the broader retail payment system. The Government’s review identified a lack of efficient competition in the system, limiting the entry of some participants and restricting innovation, leading to poor outcomes for consumers and small businesses.
That resulted in part from retailers’ preference for payment types used by a wide range of consumers such as paywave technology and credit cards. Small businesses risk losing customers if they try to avoid fees by introducing surcharges, or steering customers away from certain payment methods, so often absorb those fees as an overhead. As noted by David Clark, Minister of Commerce and Consumer Affairs, there is “growing pressure for all retailers, including the local dairy, to accept the available technologies, but they do come with an added cost”.
The bill has been introduced to address these issues.
The bill allows the Commerce Commission to recommend particular retail payment networks to be “designated” for regulation. Designation will require a ministerial recommendation, based on certain specified matters (including existing regulatory requirements applicable to the relevant network) and a prior period of consultation. The Commission will have various new powers including specific powers in respect of designated networks.
The Mastercard and Visa credit and debit networks will be initially designated as retail payment networks. The initial measures target MasterCard and Visa because, as the Minister noted during the first reading, “they cover the lion's share of the market for retail payments”.
Regulation of fees
The bill introduces initial pricing standards for the designated networks, including detailed caps on interchange fees – the fees a cardholder’s bank charges for the card payment services it provides.
For example, interchange fees for New Zealand non-commercial credit payment products must be reduced to 0.8% (or the level as at 1 April 2021, if lower). The proposed cap for contactless debit cards is 5 cents per transaction. These initial pricing standards will not apply to cards that are internationally issued, for commercial use, or prepaid. The bill will also introduce anti-avoidance provisions to ensure that issuers do not increase other non-regulated components of merchant service fees.
The initial pricing standard will commence six months after the enactment of the bill, allowing regulated parties sufficient time to comply with the new standards.
The Commission will have a broad set of tools to regulate aspects of a designated network. For example, the Commission can:
- Issue network standards, requiring participants in designated networks to comply with requirements for information disclosure, pricing, and enabling access to infrastructure by new entrants.
- Impose information disclosure requirements in relation to merchant service fees. This will make it easier for small businesses to compare the different fees charged for the different network systems.
- Issue merchant surcharging standards, which will require merchants to limit payment surcharges, disclose information, and keep records. This is intended to limit excessive surcharging that does not reflect the costs to the merchant of providing those particular transaction types. Those standards will likely take a similar approach to the equivalent regime in Australia, including information disclosure and record-keeping requirements, and may also set out how merchants must represent surcharges.
In addition, the Commission will have various monitoring, investigation and enforcement powers consistent with those conferred under the Commerce Act 1986.
Submissions on the bill are open until 25 November 2021. The Economic Development, Science and Innovation Committee will report on the bill by 3 March 2022. We will monitor the progress of the bill as it moves through Parliament and will continue to provide you with relevant updates throughout.
If you would like further details on the changes, or assistance in making submissions before 25 November 2021, please get in touch with the authors or your usual Bell Gully adviser.