Australia’s central bank has proposed removing merchant surcharges on card payments to simplify the payments system and reduce hidden costs for consumers. New Zealand already has a legislative path in the same direction — but should it adopt the same approach? This article examines what Australia is proposing, what New Zealand is already doing, the economic trade‑offs involved, and a practical path forward.
What Australia is proposing and why it matters
The Reserve Bank of Australia (RBA) has proposed banning merchant surcharges on debit and credit card payments. The central argument is straightforward: surcharges today often add opacity, are inconsistently applied, and no longer serve as an effective price signal to shift consumers to lower‑cost payment methods (especially as cash use falls).
RBA analysis suggests Australian households currently pay around AU$1.2 billion in card surcharges annually. By removing the ability for merchants to pass on those costs directly to card‑paying customers, the RBA hopes to simplify retail pricing and create stronger incentives for card networks and banks to reduce the fees merchants pay to accept cards.
What New Zealand is already doing
New Zealand has moved earlier and more legislatively. The government introduced a Retail Payments Bill that, in effect, bans in‑store surcharging for Visa, Mastercard and EFTPOS transactions and empowers the Commerce Commission to enforce the ban.
Importantly, New Zealand’s approach pairs the surcharge restriction with regulatory action on interchange and merchant service fees. The Commerce Commission has proposed reductions in interchange fees designed to lower merchant costs (a key complement to a surcharge ban) that helps avoid an excessive squeeze on merchants.
- Estimated annual surcharges (NZ): ~NZ$150 million.
- Estimated portion considered excessive: ~NZ$65 million.
- Policy timeline: phased implementation with enforcement powers for the Commerce Commission.
Benefits of banning surcharges
- Consumer fairness: Card users often feel penalised when they pay by card; a ban removes that visible surcharge.
- Simplification: Merchants no longer need to calculate and display different fees across payment methods.
- Competitive pressure: If surcharging is disallowed, networks and banks face more pressure to reduce merchant fees and be transparent.
Risks and unintended consequences
Bans are not magic bullets they shift where costs appear rather than always eliminating them. Key concerns include:
- Cost shifting: Merchants may raise base prices to recoup card acceptance costs, meaning all customers (including cash payers) could indirectly subsidise card users.
- Pressure on small businesses: Low‑margin retailers may find absorbing costs harder than larger chains, potentially squeezing profitability.
- Scope inconsistencies: Excluding online payments or foreign cards can create arbitrage and confusion for merchants and consumers.
Design principles New Zealand should follow
If New Zealand is to adopt (or maintain) a surcharge ban, design matters. The following seven principles reduce downside risks while keeping consumer benefits:
- Pair the ban with interchange fee reductions: Lower merchant fees first (or at least simultaneously) so retailers aren’t forced to absorb costs unexpectedly.
- Phase implementation: Start with in‑store domestic cards, evaluate effects, then expand the rule‑set to online and foreign‑issued cards if warranted.
- Protect small businesses: Offer transition support (guidance, technical help, or small grants) for enterprises with tight margins.
- Maintain transparency: Ensure that prices and payment costs remain explainable to consumers such as a public dashboard or annual report on interchange reductions and pass‑through could help.
- Strong enforcement: Give regulators clear powers to require refunds and issue corrective notices quickly.
- Monitor pass‑through: Actively study whether interchange cuts flow through to reduced merchant costs and ultimately to prices faced by consumers.
- International learning: Apply lessons from the EU, UK and other markets that have regulated or banned surcharges, but adapt to New Zealand’s smaller market size and tourism patterns.
Recommended policy path
Given New Zealand’s legislative momentum, the most defensible path is to proceed — but carefully. Key steps:
- Proceed with an in‑store surcharge ban while legally tying it to planned interchange fee reductions.
- Phase and evaluate the ban, extending to online payments in a later stage once implementation lessons are captured.
- Provide targeted support to small merchants and publish regular transparency reports on fees and consumer impacts.
Conclusion
Australia’s RBA has staked out an ambitious regulatory path; New Zealand is already moving in the same direction but through statute and with complementary interchange reform. A surcharge ban can improve fairness and simplify pricing — but only if it is implemented alongside lower merchant fees, clear enforcement, and protections for small businesses.
In short: New Zealand should follow the policy goals Australia is pursuing, but tailor the timing and safeguards to its own market. A phased, evaluated, and well‑resourced implementation offers the greatest chance that consumers win without unfairly burdening small merchants.