Hidden cost: how tighter payment rules could hurt Kiwis
This article was prepared by Anthony Watson for Visa and is being published by the New Zealand Herald as advertorial.
By Anthony Watson, Country Manager, Visa New Zealand & Pacific Islands
Just over two years have passed since the Commerce Commission introduced interchange regulation intended to bring down the cost of payments to consumers and businesses in New Zealand. Now, it's proposing to tighten that even further.
On the surface, the regulator's rationale seems simple: in its view, further capping interchange payments would help businesses lower their costs and therefore lead to cost savings for consumers. But there's a critical piece of analysis missing – if the regulation introduced in 2022 didn't deliver the savings promised, why will this round be any different?
Before trying the same again, let's look at what's actually happening
Interchange balances the risks and benefits for all parties to deliver secure, seamless payments. Many of the features New Zealanders now take for granted, such as contactless (PayWave), ecommerce and advanced fraud capabilities, are the result of sustained investment and global collaboration.
Before reaching for more regulation, we need to understand what impact the current regulation has achieved. To date there is no clear, data-driven evidence to show that the 2022 caps delivered their intended benefits, nor is there a detailed cost-benefit analysis of the further regulation proposed.
And that's important because, in some areas, there have been outcomes that run counter to the original intentions of the regulation. Take surcharging, for example. Despite guidance to encourage businesses to pass on lower costs, surcharging has become more prevalent - not less. This raises serious questions about whether further fee reductions would be passed on to consumers at all.
A comprehensive assessment of what's already occurred is needed before introducing deeper regulatory intervention. Otherwise, how can decision makers be confident that this next step will deliver the intended outcomes?
Regulation should be a response to proven problems
Interchange encourages innovation and competition while contributing to the protection of New Zealand consumers and businesses from card-related fraud.
In countries where card schemes operate under artificially low or compressed interchange, there has been evidence of a lag in terms of development and the introduction of new payments technology. We have a widely-acknowledged local example in Eftpos which, despite its initial success, does not offer contactless payments in New Zealand. This is largely due to Eftpos' zero-cost model which did not generate sufficient returns to re-invest in new technology. Singapore's Competition Commission, by comparison, concluded in 2013 that regulating interchange would create barriers to entry and since then has gone on to develop one of the most advanced digital payment ecosystems in the world.
This is why any changes to how interchange fees are regulated should be grounded in robust analysis - not assumptions or generalisations. Regulation is an important part of a well-functioning market, but it should be balanced and used as a safeguard, not a sledgehammer.
Without a clear demonstration that the current caps have failed, surely pushing ahead with further restrictions is premature, and uncertain. First, we must look at the other levers and elements in the picture.
The risks of getting it wrong
Let's be clear: slashing interchange further, without understanding the ripple effects, risks unintended consequences. We're talking about restricted access to affordable credit – especially for small businesses, and a slowing of New Zealand's economy with impacts on tourism, commerce and foreign direct investment.
Let's focus on commercial cards. Used by many small and medium-sized businesses (SMBs) to manage cash flow, commercial cards could become unviable if further interchange caps are applied. A Retail NZ poll found that 92% of its member businesses used a credit card for purchasing business items. With SMBs representing 97% of New Zealand's businesses overall [1], introducing a cap could disproportionately affect their access to commercial credit products to manage their working capital requirements.
When it comes to other methods of payment, all forms from cash to Eftpos, four-party debit and credit card models like Visa, or more expensive credit options like Buy-Now-Pay-Later (BNPL) come at a cost and provide different levels of additional value, convenience and security. While lower interchange may sound appealing, it would reduce the viability to deliver secure and convenient payment experiences.
Our evidence shows that taking action on interchange in one, undifferentiated swoop is likely to have the opposite effect than the Commission intends. It will push consumers and businesses to other credit options, like charge cards or BNPL, which generally have a higher cost for consumers and businesses, immediately negating the benefits of any initial cost saving (and increasing surcharges if nothing else). It will likely result in lower authorisations for everyday payments (which means fewer sales for businesses and more frustration for consumers). And it will limit innovation and restrict choice, essentially shutting the door to new fintech competition entering the New Zealand market in future.
Let's take a measured, evidence-first approach
Visa supports a competitive, innovative, and secure payments environment in New Zealand that delivers great outcomes for consumers, businesses and the economy. And we support regulation that is backed by clear data and designed to deliver long-term value.
At this point, we encourage the Commission to pause, step back, and conduct a full regulatory impact assessment. Without that, we risk undermining the very outcomes we're all trying to achieve.
Because, when it comes to a system that is important in driving economic growth and tourism in New Zealand, we can't afford to get it wrong.
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