logo
Hidden cost: how tighter payment rules could hurt Kiwis

Hidden cost: how tighter payment rules could hurt Kiwis

NZ Herald05-05-2025
A move to reduce payment fees further risks pushing up costs, stifling innovation, and putting small Kiwi businesses at risk.
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.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

KiwiSaver hardship reveals hidden cost of this economic downturn
KiwiSaver hardship reveals hidden cost of this economic downturn

NZ Herald

timean hour ago

  • NZ Herald

KiwiSaver hardship reveals hidden cost of this economic downturn

We had news last week that KiwiSaver members withdrew more than $470 million for hardship reasons in the past 12 months amid continuing economic stress. Inland Revenue figures showed $470.7m was taken out of KiwiSaver in the June financial year, up 56.6% from $300.5m over the prior period. Looking back through the figures, there has certainly been a big spike in withdrawals in the past two years, but they have been on the rise for several years. Since Covid, both the number of people withdrawing funds and the amount withdrawn have risen steadily. As a barometer of the general economic situation, that isn't great. But the bigger problem with these hardship withdrawals is that the ultimate cost is (quite literally) compounded through the years. More than $1.3 billion of KiwiSaver funds has been withdrawn for hardship reasons in the past five years. If we do some back-of-the-envelope calculations and assume this money could have earned around 7% returns for the next 20 years, then we get a figure of more than $5b that will be missing from the nation's pool of retirement funds by 2045. Given the current trend of withdrawals, I suspect this is a conservative estimate. I understand why we allow withdrawals for hardship. It doesn't make sense for people to lose their homes or to go hungry when they have thousands of dollars sitting in a KiwiSaver account, so I'm not advocating that we stop allowing the withdrawals. However, there is a hidden cost and the situation highlights just how crucial it is for the Government to put more focus on retirement savings. There is a lot more money coming out of the KiwiSaver scheme to fund people into their first homes. Since Covid hit, an average of about $1.2b a year has been withdrawn from KiwiSaver for first home purchases. A home is an asset at least, and home ownership is an important step on the path to financial independence. I suspect we just have to accept the first home buyer withdrawals as a feature of the KiwiSaver scheme. If young people are in the scheme from the start of their working life and have $10,000 or $20,000 to put towards a house deposit, they are probably ahead of where many in my generation were at the same age. But the reality is that as a nation, we're well behind on where we need to be with our retirement savings. According to Stats NZ projections, the percentage of the population aged 65+ will increase from roughly 16-17% in the early 2020s to about 19-20% by 2030. By 2050, around 24-26% of New Zealanders are expected to be 65+. The old-age dependency ratio (ratio of elderly to working-age population) is expected to nearly double between 2020 and 2050. Our annual superannuation bill already comes in at more than $20b, and Treasury has projected that to rise to about $45b by 2037. According to Budget 2025 data, New Zealand Superannuation costs $4352 per person per year, making it the third-largest area of government spending after welfare ($6181 per person) and health ($5804 per person). From the Treasury's long-term fiscal projections, spending on NZ Super is projected to grow from 4.3% of GDP in 2010 to 7.9% in 2060, an increase of 3.6 percentage points. It is also rising as a percentage of the Government's total tax revenue – from about 17% now, it is projected to rise above 21% by 2037. So we know we have a problem. It seems almost certain that the age of superannuation will have to be raised to 67 in the coming years – despite the current opposition of NZ First and Labour. Future governments will almost certainly come under more pressure to means-test. KiwiSaver, which currently has total funds of $122b, is one of our great hopes. But the total figure is flattering. There are more than three million KiwiSaver members so the average fund size is just $37,000. Hopefully, that will be skewed by a lot of young people who will see their savings grow dramatically in the next decades. That brings us back to the downside of withdrawing funds early for hardship, though. We need to be saving more, not less. Moves by the Government to lift the default contribution rate for both employees and employers to 4% from April 2028 were a step in the right direction. However, they pale in comparison to Australia's compulsory scheme, which requires 12% employer contributions. The scheme has the equivalent of $4.5 trillion invested, making Australia the fifth-largest holder of pension fund assets in the world, not per capita but in nominal terms. Australia, for the record, also allows people to withdraw funds for hardship, but one suspects fewer people there need to. If we want to make the most of the KiwiSaver scheme we have, we need to look more closely at who is withdrawing their money and why. Meanwhile, young Kiwis are voting with their feet and joining the Australian Superannuation scheme ... by virtue of moving to work there. Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.

Is there anything we can actually do to bring down butter prices?
Is there anything we can actually do to bring down butter prices?

1News

time16 hours ago

  • 1News

Is there anything we can actually do to bring down butter prices?

The alarming rise of butter prices has become a real source of frustration for New Zealand consumers, as well as a topic of political recrimination, writes Lincoln University professor of agricultural economics Alan Renwick. The issue has become so serious that Miles Hurrell, chief executive of dairy co-operative Fonterra, was summoned to meetings with the government and opposition parties this week. After meeting Hurrell, Finance Minister Nicola Willis appeared to place some of the blame for the high price of butter on supermarkets rather than on the dairy giant. According to Stats NZ, butter prices rose by 46.5% in the year to June and are now 120% higher than a decade ago. The average price for a 500g block is NZ$8.60, with some local brands costing over $10. But solving the problem is not a matter of waving a magic economic wand. Several factors influence butter prices, few of which can be altered directly by government policy. ADVERTISEMENT And the question remains – would we want to? Proposals such as reducing exports to boost domestic supply, or cutting goods and services tax (GST) on dairy products, all carry consequences. A key factor driving butter prices in New Zealand is that 95% of the country's dairy production is exported. Limited domestic supply and strong global demand have pushed up prices for a range of commodities – not just milk, but beef as well. These increases are reflected in local retail prices. Another contributing factor is rising costs along the supply chain. At the farm level, producers are receiving record prices for dairy. But this comes at a time when input costs have also increased significantly. It is not all profit. Weighing the options Finance Minister Nicola Willis. (Source: Getty) Before changing rules around dairy exports, the government must weigh the broader consequences. ADVERTISEMENT On the one hand, high milk prices benefit 'NZ Inc'. The dairy sector accounts for 25% of exports and employs 55,000 New Zealanders. When farmers do well, the wider rural economy benefits – with flow-on effects for the country as a whole. On the other hand, there is the ongoing challenge of domestic food security. Many people cannot afford basic groceries and foodbank use is rising. So how can New Zealand maintain a food system that benefits from exports while also supporting struggling domestic consumers? One option is to remove GST from food. Other countries exempt dairy products from such taxes in an effort to make staples more affordable. This idea has been repeatedly reviewed and rejected – including by the 2018 Tax Working Group. In 2024, it was estimated that removing GST could cost the government between $3.3bn and $3.9bn, with only modest benefits for the average household. Fonterra or supermarkets? File photo. (Source: ADVERTISEMENT Another route would be to examine Fonterra's dominance in the supply chain. There are advantages to having a strong global player. And it is not in the national interest for the company to incur losses on domestic sales. Still, the structure of the market may warrant scrutiny. For a long time there were just two main suppliers of processed dairy products – Fonterra and Goodman Fielder – and two main retailers – Foodstuffs and Woolworths. This set up reduced the need to compete on prices. While there is arguably more competition in manufacturing sector now, supermarkets are still under scrutiny and have long faced criticism for a lack of competition. The opaque nature of the profit margins across the supply chain also fuels suspicion. Consumers know what they pay at the checkout and what farmers receive. But the rest is less clear. This lack of transparency invites speculation about who benefits from soaring prices. In the end, though, the government may not need to act at all. As economists like to say: 'Nothing cures high prices like high prices.' While demand for butter is relatively inelastic, there comes a point at which consumers reduce their purchases or seek alternatives. International buyers will also push back – and falling global demand may redirect more supply to domestic markets. High prices also act as a signal to producers across the globe to increase production, which could happen relatively quickly if there are favourable climatic and other conditions. ADVERTISEMENT We only need to look back to 2014, when the price of dairy dropped by 48% over the course of 12 months due to reduced demand and increased supply, to see how quickly the situation can change. Alan Renwick is a professor of agricultural economics at New Zealand's Lincoln University. This article was republished from The Conversation under a Creative Commons Licence.

'Brought to its knees': Why NZ can't shake the recession
'Brought to its knees': Why NZ can't shake the recession

Otago Daily Times

timea day ago

  • Otago Daily Times

'Brought to its knees': Why NZ can't shake the recession

By Susan Edmunds of RNZ New Zealanders were told to "survive til '25" for the economy to pick up - but now one major bank economist says it's probably going to be 2026 before any real improvement happens. Kiwibank's latest Annual Regional Note shows small improvements across the country, but weak scores overall. The national average score has lifted from three out of 10 to four. Southland and Otago top the table at five. Otago was boosted by a recovery in international tourism and improvement in employment. Northland, Taranaki and Gisborne went backwards. Taranaki had the biggest fall in employment of anywhere in the country, at 8 percent. Northland reported a double-digit drop in building consents. Retail sales remain below their average levels over the past decade in most regions, as weak household confidence weighs on consumption. Kiwibank said Wellington recorded the steepest annual decline at a -3.3 percent, while regions like Waikato, Northland and the Bay of Plenty experienced a slight improvement on last year. 'Wellington is just more pessimistic' Wellington's score improved from a two out of 10 to a three out of 10 while Auckland lifted from a three to four. "Wellington is just more pessimistic," Kiwibank chief economist Jarrod Kerr said. "It's gone through a lot in recent years. You can see it in their activity, you can see it in the housing market. You can see it in the economy, the city has been brought to its knees and it's been struggling to shake the pessimistic vibe." He said both Auckland and Wellington were well below average. "If you look across the regions, some of them have gone backwards and others are improving but it's not good. "When you look at the South Island things are better, people are definitely more optimistic in the South Island but even then the top scoring regions get a five out of 10." He said the report helped solidify the view that rate cuts to date had not been enough to turn around the economy. "We're really crawling out of this recession rather than regaining our footing and looking to grow from here. We're still struggling across the entire country." He said Kiwibank customers last year had talked about needing to hold on until this year. "We are halfway through the year and, yes, things are better but only by a little bit." Worse off than Australia New Zealand was worse off than Australia, he said. "Their economy is much stronger than ours but in their terms it's soft… where everything washes out is the labour market and, you know, the unemployment rate tells you a lot. Our unemployment rate is over 5 percent and theirs is pretty close to 4 percent." Part of the reason was the more aggressive interest rate hikes from the Reserve Bank, he said. "We were much more aggressive in our rate hikes than in Australia. We were much more aggressive on inflation than across the Tasman. "I think both the RBA and RBNZ made mistakes as I think every central bank did through the Covid period, we overstimulated in hindsight but at the time it was the right thing to do. And then we had to deal with the inflation problem." He said the Reserve Bank had kept the official cash rate at 5.5 percent for too long as it worked to tackle inflation. "We had a really bad recession last year, which the Reserve Bank openly orchestrated, they said 'look, we need a recession to get inflation back down'. The Australians didn't orchestrate a recession, they didn't slam the economy into the floor." Kerr said recovery was still coming but he had hoped it would have started more obviously by now. "We're hoping it takes off in the second half of this year as more and more people refix on to lower rates. Then it's more of a 2026 story now."

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store