Mastercard and Visa are both reducing interchange rates for contactless debit effective August 1 and August 15 respectively.
Visa will also be reducing interchange on contactless credit and scheme fees.
The move by both companies is welcomed by Retail NZ, which believes it will lead to lower merchant fees for contactless debit transactions.
Retailers pay a merchant service fee to their bank every time a customer uses a contactless debit or a credit card. The merchant fee is comprised of interchange fees, paid by one bank to another, and an acquiring fee charged by the bank to cover the costs of scheme fees and processing costs.
Historically, these have been bundled together into a single flat charge for all transactions, but banks are increasingly moving towards an “Interchange Plus” arrangement.
Reducing interchange rates will lead to lower merchant fees.
“Retail NZ has been campaigning for lower merchant fees for some years, and we are delighted that Visa and Mastercard are leading the way by reducing some of the interchange rates that banks pay each other when processing credit and contactless debit transactions,” said Greg Harford, Retail NZ’s chief executive.
“The changes by Visa and Mastercard should lead to lower merchant fees, which is great news for retailers and customers alike.”
Harford said the reductions in interchange should flow through immediately to merchants who are on an Interchange Plus arrangement, and merchants who are on a bundled rate should talk to their bank about what it will mean for their pricing.
“We have seen substantial movement in merchant fees over the last few years,” he said.
“A big myth is that contactless payments are prohibitively expensive – but they shouldn’t be. While we know that some merchants pay too much for contactless payments, this is probably because they are on the wrong kind of bundled rate for their business.”
Harford said that what’s not commonly understood is that while there is a charge for contactless debit transactions, the charges for most contactless credit transactions are substantially lower than for traditionally inserted or swiped credit transactions.
“So, while on one hand, there will be higher fees for debit, if retailers encourage their customers to go contactless, the cost of processing credit cards should go down – and we would expect this to help balance the costs overall,” he said.
“The precise fees charged will depend on the size of the business and the kind of cards used by customers.”