Taking card payments will now be more cost effective

The Commerce Commission has acted to reduce the cost of interchange fees on Visa and Mastercard payments. Find out what this means for your transaction costs.

According to statistics from the Commerce Commission, New Zealand businesses are charged around $1 billion a year to accept Visa and Mastercard payments – a cost that’s often passed onto the end customer through surcharges and higher product costs.

The Commission has determined this cost is too high and has acted to reduce this cost for businesses by around $90 million a year. The Commission has also announced an outright ban on surcharges for customers making in-person card purchases, helping to cut costs for consumers too.

Reducing the cost of taking Visa and Mastercard payments is great news for NZ small businesses that take a large number of card payments.

But what are these interchange fees that your business incurs when taking a card payment from a customer? Let’s take a look at how these fees work.

What are interchange fees?

Interchange fees are a small percentage of a card transaction that’s paid by the merchant's bank (the acquirer) to the customer's bank (the issuer). These fees, set by card schemes like Visa and Mastercard, compensate the issuer for card services and fraud protection.

These interchange fees form a major part of your card processing costs as a merchant, adding to the overall expenses of taking card payments.

Why did interchange fees need to be reduced?

In many instances, the costs of these interchange fees are recouped by the business, using surcharges or higher prices – meaning that customers end up paying more.

Depending on how your business accounts for the interchange fees, you’re either losing out as a business, by absorbing the cost, or your customers are losing out through increased charges and high prices. Neither of these scenarios is good for business.

To tackle this issue, the Commerce Commission has taken action to lower the cost of interchange fees – at present, only for Visa and Mastercard transactions.

Action taken by the Commerce Commission

Cutting costs for NZ businesses and their customers was the key goal behind this reduction in interchange fees, building on the initial caps that were set in 2022, leading to $140 million in annual savings to New Zealand businesses.

Commerce Commission Chair, Dr John Small, was quoted as saying:

“This decision cuts the cost for businesses accepting payments made through credit cards and foreign-issued cards, which are often the most expensive for businesses to accept.

“We expect our latest decision to see the average small business save around $500 each year in lower fees. Individual businesses could save more or less, depending on the mix of transactions they accept.”

The Government also announced a complete ban on surcharges for customers using in-person card payments. This will include Visa, Mastercard, EFTPOS and PayWave. The aim is for this surcharge ban to become mandatory from no later than May 2026.

Let’s review the potential saving on your card transaction costs

If you’re habitually taking a large number of Visa and Mastercard transactions, this cut to interchange fees could be great news for your card transaction costs.