Commerce Commission embarks first on education, then enforcement, as research shows big increase in payment surcharges
Eleven percent of retailers have stopped accepting cash, buy-now-pay-later or Eftpos or other cards since the first Covid lockdown. Among the 4 percent who no longer accept cash, hygiene and being difficult to bank are common reasons for not doing so.
Instead, a third of those who apply credit card surcharges have begun since Covid hit – and almost one in five retailers within the past year. Among those who surcharge, 80 percent add it to Mastercard or Visa credit cards, 36 percent add a surcharge to debit cards, and 23 percent to contactless payments.
The research firm Kantar Public has surveyed in-person and online retailers on behalf of the commission. It received responses from 1,114 decision makers responsible for deciding which payment methods their business or organisation accepts from consumers. Of those that accept cards, 22 percent apply surcharges – the vast majority on Visa and Mastercard transactions.
READ MORE: * A trip and a show: Cracking down on the most expensive transaction fees * Commission warned as big credit card firms resist crackdown
Under the new Retail Payment System Act 2022, the Commerce Commission has the power to promote competition and efficiency in the retail payment system for the long-term benefit of merchants. It's started by capping credit card interchange fees that banks pass on to retailers.
Now it's looking into whether retailers are charging consumers heavier surcharges than the fees merchants pay the banks. The most common surcharge rate is between 1.6 and 3 percent, although some retailers admit applying surcharge rates between 4.1 and 10 percent.
Commission chair Dr John Small earlier signalled travel and accommodation websites would be first to face scrutiny. "Surcharging tends to happen at places where merchants are either under extreme pressure, or they've got a bit of market power," he told Newsroom last year.
It's the latter that concerns the commission most. "It will happen at the end of booking an air flight online, because you've gone through all that stuff to get there and, okay, now they impose the charge. Or you walk into a hotel, or you pay at the end of a taxi ride."
Consumer NZ said it received a complaint last year about Air NZ charging a $7.10 card fee – typically charged on trans-Tasman fares. Domestically, the national carrier charges $2.80 per leg for a card payment fee. The cheapest one-way fare advertised is $79, which works out at a card payment fee of 3.5 percent. The fee works out proportionately less on a more expensive flight.
Jetstar says it charges $5 to $12.50 per booking. So the booking fee on its cheapest fare comes to $5 on top of a $56 one-way fare – or an additional 8.9 percent.
Air NZ chief financial officer Richard Thomson says the money the airline collects in credit charge surcharges is passed back to the bank.
"The airline charges this on a simple fixed-fee basis for each of domestic, short-haul international and long-haul international routes," he explains. "The fixed-fee structure offers a simple model that customers can easily understand and is reassessed regularly.
"It allows customers to easily predict the additional cost of using a credit or debit card regardless of the total amount of their airfare, making it easier for customers to budget and plan the costs of their travel – whereas a percentage-based surcharge would vary widely depending on the amount of the fare purchased.
Thomson says customers can avoid paying these type of fees at all, by buying their airfares using the online payment tool POLi, Airpoints Dollars, or cash if booking through a travel agent.
Jetstar spokesperson James Hancock says the airline doesn’t charge a credit card surcharge.
"We do have market-based booking and service fees which are disclosed to customers and detailed on our website," he says.
"We acknowledge the Commerce Commission’s open letter and are willing to meet with the Commission to provide further information. We’re committed to giving our customers access to low fares so they can afford to travel more often."
The Kantar research finds 22 percent of retailers currently surcharge some types of cards or transactions.
Types of cards / transactions surcharge (%)
"When deciding whether to add a surcharge or not, the main consideration among merchants who currently surcharge was the cost to themselves and whether they could afford not to," the report says.
"Some considered whether similar businesses were surcharging. Only one in five took their customers into consideration."
Merchants are often hesitant to add a surcharge, the report says. "They do not want to be seen as increasing their costs more than necessary, especially with rising costs due to inflation. Some merchants also do not want to be seen as the type of business that adds a surcharge. This means that merchants often tend to wear the cost themselves rather than pass them on to their customers."
Survey respondents indicated it was a tough decision to impose a surcharge. "I'm in a quandary, I don't know whether I should or not," said one. "Everyone seems to be doing it … So, do I just add another little bit into the price of the item, to cover the surcharge? Because it's a big pushback for me, and as a customer, as a client, I don't like paying it.”
Another said: “You know, that final phase of your purchase should be quite a joyous one. Instead of getting up there and going 'oh yuck, surcharge'. I think it's a negative point in the process.”
One retailer said they were holding out against imposing a surcharge. “We just absorb the cost. That's the cost of doing business," they said. "We'd like it to be less than what we're paying. But that is what it is. It's like having a surcharge for a public holiday. You don't charge customers. That's a cost of doing business.”
Eftpos provider Smartpay warns more customers are paying surcharges as they shift from swiping their cards to contactless payments.
"As a broad estimate, the average surcharge fee rate for Smartpay customers is between 2 and 3 percent," the company says. "In which case, if a customer makes a $30 purchase the merchant fee to accept the payment would be between 60c and 90c. While this seems a small amount per transaction, these bank fees can quickly add up.
"So why do merchants bother accepting contactless payments? In short, because that’s how customers expect to pay."
It says the decision over applying a surcharge is a conundrum for small businesses.
"While it costs to accept a contactless credit card or debit card payment, it also can cost not to accept it. Good customer service and bad customer service can both impact your bottom line dramatically.
"Businesses that don’t accept contactless risk seeing customers walk out the door because they are unable to pay without a mobile wallet option as they are not carrying a physical wallet or cash. More than half of millennials will even avoid shops that don’t accept contactless payments. And this entire shift has only accelerated due to Covid-19.
"This places retailers in between a rock and a hard place. Either watch customers walk out the door because they only have a digital wallet to pay, or accept these payments and associated costs. Unsurprisingly, many New Zealand businesses don’t see either option as particularly desirable and have opted instead for a third way: introducing a payment surcharge fee.
"Your surcharge fee should only cover the cost of acceptance, and you must declare it to your customer before payment," the company advises retailers. "When done right, surcharging is a fair and transparent way to allow customers to pay the way they want (and collect the rewards they want), without reducing margins or increasing prices for the merchant."
Newsroom also surveyed some of the fees and surcharges applied by hotel booking companies and events ticketing sites.
Ticketmaster is headlining “Disney on Ice” at Auckland's Spark Arena. The cheapest ticket is $59.75, but an additional order processing fee of $8, levy of $4.95, and payment processing fee of $1.37 increases the total by 24 percent to $74.07. The company did not reply to an email seeking an explanation for its transaction fees.
Ticketek says its cheapest ticket for “Dirty Dancing in Concert” is $81, but in fact the lowest price available on its website is $149. There's an additional handling fee of $5.50, a booking fee of $2.00, and a payment processing fee of $4.53, hiking the total by 8 percent to $161.03.
An unnamed TEG spokesperson replied by email, saying Ticketek's fees covered the end-to-end service delivery for the company’s venue and event partners. “All fees are reflective of the costs associated with providing the services, which may vary depending on the requirements of each venue or event,” the unidentified spokesperson said.
