Commerce Commission releases data on interchange and credit card settlements

The Commission today released its ‘Evaluation of the 2009 interchange and credit card settlements’. This paper outlines the agreement the Commission reached with banks and financial institutions in relation to the setting of fees charged to merchants/retailers for accepting credit card payments and how this impacted the market between 2010/11 and 2012/13.   
   
These settlement agreements were designed to significantly reduce the average interchange fee, the fee made from the merchant/retailer’s bank to the customer’s issuing bank. The settlement agreements also stopped perceived anti-competitive practices by banks, including a “No Surcharge rule.”

The Commerce Commission says retailers have saved more than $70 million in credit card interchange fees since the Commission’s 2009 settlement agreement with banks and financial institutions.

Commerce Commission Chairman Dr Mark Berry said the ability for retailers to surcharge provided benefits to the consumer.

“It’s a user pays system.”

“Surcharging allows a retailer to recoup any additional cost in accepting a credit card from the person using the card. It means the retailer does not have to average out the cost of that fee across their business therefore potentially penalising other customers who use cash, EFTPOS or other payment method.”

“The ability to surcharge also enhances the retailer’s ability to negotiate lower fees for accepting credit cards from their banks. That is, retailers may be able to negotiate lower fees, therefore making it unnecessary to surcharge at all,” said Dr Berry.

The survey of retailers indicates that the proportion of retailers currently surcharging on credit cards is relatively small.

Background

In 2009, the Commerce Commission engaged in settlement agreements with MasterCard, Visa and banks and financial institutions in New Zealand.

These settlement agreements resulted from the Commerce Commission’s investigation into the setting of credit card merchant service fees (MSF) and associated rules imposed by the credit card schemes  (e.g. Visa and Mastercard). The Commission received numerous complaints from the retail sector regarding these fees and rules.

The allegation was that the fixing of the ‘interchange fee’ component of the MSF by each of the credit card schemes and card issuers was anti-competitive. This inflated merchants’ costs and led to higher prices for consumers. Interchange fees represented about 80% of the MSF charged by retailers own bank to retailers.