The Commerce Commission (Commission), which is tasked with regulating retail payment networks in New Zealand, has released materials to assist merchants who are imposing surcharges on retail payment transaction to do so "appropriately" and to ensure that "consumers know their options". The Commission has also penned an open letter to payment service providers outlining how they can assist their merchants by supplying better information that will then allow merchants to surcharge appropriately.
Here we summarise the Commission's expectations for merchants who engage in surcharging practices, its guidance on how payment service providers can assist merchants to surcharge appropriately, and the regulatory tools available to the Commission if its monitoring activities reveal that further regulatory steps under the governing legislation - the Retail Payments System Act 2022 (Act) - are required to ensure the objectives under the Act are met.
Why is the Commission concerned to ensure appropriate surcharging?
Under the Act, an initial pricing standard imposes a cap on the total interchange fees on transactions processed through Visa and Mastercard's consumer credit and debit retail payment networks. The interchange fee is charged by the cardholder's bank, the "issuer", to merchant's bank, the "acquirer", and makes up a portion of the merchant service fee, which is charged by acquirer to the merchant – that is, part of the cost of the merchant accepting card payments. This cap is intended to help meet the statutory objective of the Act, which is to promote competition and efficiency in the retail payment system for the long-term benefit of merchants and consumers in New Zealand.
While the Commission accepts surcharging can help promote competition and efficiency if done appropriately, it is expected that consumers see the benefits of the cap, including in the form of a reduced merchant service fee reflecting the reduction of the interchange fee. Therefore, the Commission is not only actively monitoring compliance with the caps, but is also taking steps to ensure that the benefits of lower interchange fees are being passed on to consumers, hence the attention on merchant surcharging behaviour. As discussed further below, the Commission is particularly focused on:
- surcharging transparency, so that consumers know their surcharging options; and
- the level of the surcharge, which it believes should reflect the cost of accepting a particular payment method.
Surcharging guidance for merchants
The Commission's materials to assist merchants to surcharge appropriately can be found here. The key points are:
- Merchants should be transparent about surcharges and a customer's surcharge options ahead of paying. The Commission has noted that failure to disclose surcharges and to accurately describe the reason for the surcharges may risk breaching the Fair Trading Act;
- Merchants should provide at least one alternative method of payment which does not involve a surcharge;
- Surcharges should be no more than the cost of accepting a particular payment method; and
- The Commission has indicated that if the business wants a single rate of surcharge for different payment methods, that surcharge should be no more than the weighted average of the fees for accepting those types of payment methods.
Surcharging guidance for payment service providers
In its open letter to payment service providers (here), the Commission noted that many surcharging imbalances can be addressed by merchants themselves. However, it also considered that payment service providers can play a role in addressing some of those imbalances by providing merchants with:
- The right information to surcharge appropriately including the Commission's surcharging materials, information on merchant service fee rates, and, where merchant service fees are bundled, disaggregated information on what the merchant is paying for (this would be facilitated by acquirers); and
- The capability to surcharge appropriately by restricting the ability to surcharge inappropriately (this would be facilitated by terminal providers) and by providing the knowledge and the ability to conduct differential surcharging (this would be facilitated by terminal providers and acquirers).
The Commission has also indicated that it seeks to further understand how prohibitions on surcharging by certain payment networks promote the objectives of competition and efficiency under the Act.
The Commission's regulatory response: what could it do next?
The Commission has powers under the Act to issue merchant surcharging standards to ensure that surcharges for retail payment services are no more than the cost to the merchant of the payment services used for accepting retail payments.
These standards may require that merchants:
- Disclose information relating to surcharges;
- Represent surcharges in a manner set out in the standards;
- Limit surcharges in accordance with the standards; and
- Keep records of how payment surcharges are calculated.
Unlike the initial pricing standard, which only applies to networks that are designated (the Visa and Mastercard consumer credit and debit networks), these standards may apply to any network, such as other card schemes and buy-now-pay-later providers.
The Commission has not yet introduced any merchant surcharging standards since the Act was passed in May 2022. However, merchants, in light of the Commission's guidance, should be taking steps now to ensure that their surcharges are transparent and represent the cost to the merchant of accepting the payment. The Commission will continue to monitor the behaviour of merchants and may issue merchant surcharging standards if it considers that surcharging practices are not appropriate.
If standards were to be introduced, merchants who contravene or have been involved in a contravention of these standards could be liable to pay a maximum penalty of NZ$200,000 in the case of individuals and NZ$600,000 in the case of an organisation. The Commission would also be required to consult on the proposed standards before those standards come into force.
The Commission is seeking feedback
The Commission has expressly sought feedback from each of the payment service providers on the issues raised in its open letter. Merchants may also wish to comment on these issues, as well as the merchant and consumer surcharging guidance on its website.
If you would like to further understand the Commission's guidance and the implications for your organisation or business, or require assistance in providing feedback to the Commission on the issues it raises, please get in touch with one of our experts.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.