Surcharges should be down and out

Consumer NZ says card payment surcharges should now be down to about 1%, and research shows support for a surcharge ban is surging.

At the start of December, interchange fees were reduced. That means the cost to businesses of accepting card payments has reduced. It's estimated businesses will save about $90 million a year from this reduction. Shoppers should also start seeing lower surcharges because of this change.

Currently, businesses can legally charge customers an extra amount to cover the additional costs associated with accepting credit and contactless debit card payments.

"We used to say any card payment surcharge above 2% was excessive. However, now that interchange fees have reduced, we expect surcharges for Visa and Mastercard payments to be around 1%. Any business paying more than this should shop around for a better deal," says Jessica Walker, campaigns manager at Consumer.

Although there's no surcharge regulation in New Zealand, there are guidelines that businesses should follow. The guidelines say that surcharges should be transparent, avoidable and not excessive. Unfortunately, these guidelines are often ignored.

"Our surveying has found that over one-quarter of New Zealanders are rarely or never told about a surcharge before they pay, and 51% of people have paid a surcharge because they felt it was unavoidable. The surcharge situation is a real mess."

Since 2023, Consumer has received over 300 complaints about excessive surcharges – one of the highest surcharges we've heard of this year was at a nail salon that charged a 25% card payment surcharge.

"In theory, surcharges should be reduced because of the lower cost to businesses. In reality, we doubt many businesses have passed on these savings. But it's time they did."

The introduction of the Retail Payment System Act in November 2022 led to yearly savings of over $140 million for merchants. That was also supposed to lead to lower surcharges for customers. But Consumer says these savings have not always been passed on to consumers.

Support for a surcharge ban is increasing

Consumer's surveying has found that support for a ban on card payment surcharges has surged by 10% since April this year.

"Almost 60% of New Zealanders now support or strongly support the introduction of a ban on card payment surcharges," says Walker.

Consumer says a surcharge ban would put an end to excessive, hidden and unavoidable in‑store surcharges and would be much easier to monitor and enforce than a surcharge cap.

"We understand the concerns about businesses raising their prices to cover income lost by a surcharge ban, but we think those concerns have been wildly exaggerated.

"The lower interchange fees mean that any business that decides to raise its prices because of a surcharge ban would only be able to increase their prices minimally (around 1%) or risk misleading consumers. Compare that with the $45 to $65 million per year that consumers are currently paying in excessive surcharges, and the ban seems like a no‑brainer," says Walker.

Consumer understands a surcharge ban may mean people using low‑cost payment methods, like cash or EFTPOS, could end up subsidising higher‑cost payment methods, like credit cards.

"But cross‑subsidisation is already happening at places that don't surcharge and at those that impose the same surcharge across different payment methods. For example, accepting a contactless debit card payment costs a business less than accepting a credit card payment, but many merchants choose to average out those costs and charge a flat surcharge fee to everyone."

"That means people paying by debit card are already subsidising the cost of those paying by credit card. The same applies at your local supermarket, where you're unlikely to be stung with a surcharge because the cost of accepting card payments is spread across all customers."

Swerve the surcharge

Consumer is urging people to watch out for excessive surcharges over the festive season and beyond.

"If you're stung with an excessive surcharge, we want to hear about it. We also want to know if you're caught out by an undisclosed or unavoidable surcharge. You can let us know by emailing playfair@consumer.org.nz."

"Don't get caught out by a hidden or excessive surcharge. When you're buying something, and it's not clear whether there's a surcharge, or how much the surcharge is, we recommend asking before you tap your card or phone. And, if the surcharge is too high, give it a swerve."

Pay with cash, EFTPOS or swipe or insert a debit card to avoid surcharges this silly season.