Last year we flagged the introduction of the Retail Payment System Bill (the Bill) as the Ministry of Business, Innovation and Employment released a Cabinet paper containing information on a new regime to regulate and reduce merchant service fees within the retail payments system.
The Bill has since received Royal Assent on 13 May 2022, becoming the Retail Payment System Act 2022 (the Act). Apart from the initial pricing standards (which come into effect six months after the date of Royal Assent) the Act is now in force.
What is the retail payment system and why regulate it?
The “retail payment system” refers to the web of technical infrastructure underlying transactions between consumers and merchants in the economy. Within the retail payment system are various “retail payment networks” (for example the Visa and Mastercard schemes, bank transfers/direct debits, EFTPOS and prepaid cards).
Those networks also include “participants”, which are either network operators or service providers such as payment service providers or infrastructure providers (but not merchants or consumers who simply use the networks).
The Act is primarily intended to (a) regulate merchant service fees (the fees banks charge businesses when customers use a credit or debit card to pay) to bring them in line with fees charged in regulated markets overseas, and (b) promote competition in the retail payment system, by making it easier for new participants to enter and create innovative new payment networks and services.
What does the Act include?
The Act sets out a process for the Commerce Commission (Commission) to monitor all participants in the retail payment system and recommend the ‘designation’ of retail payment networks. Designations will only happen following industry consultation. The Commission has the power to issue standards in relation to a designated network, which may include:
- limits on fees for payment services;
- requirements for participants to disclose information relating to the network or payment services;
- access rules for parts of a designated network, such as requiring participants to provide network access to new participants or allowing a person to gain access to a network or become a participant.
Mastercard and Visa are the initial ‘designated networks’ under the Act and are subject to initial pricing standards capping ’interchange’ fees (a key component of merchant service fees set by card providers) from 13 November 2022.
This means banks and other card issuers and acquirers in those networks will also be affected, as they need to ensure the capped fees are reflected in their pricing.
Watch out for surcharging standards
The wider retail sector should also be aware of the Commission’s power under the Act to issue surcharging standards that would impose requirements on all merchants using retail payment services.
These standards may limit payment surcharges or set requirements regarding disclosure, record-keeping and presentation of payment surcharges. They could be applied to payments made using any network, not just those that have been designated. Similar standards already exist in Australia, which is a potential playbook for the Commission to work with. The main goal will likely be to ensure that merchants are not profiteering from surcharges and that they reasonably reflect the underlying costs of processing payments.
Conclusion
Outside of general commercial and consumer law (and the Reserve Bank’s oversight role), the retail payments system in New Zealand has been largely unregulated to date. As a result, it will be interesting to see how the Commission and the wider retail payment system responds to the new regime. It’s a new role and broad set of powers for the Commission, and their public statements to date suggest they are still very much in listening mode about how they will exercise them.
In the meantime, if you have any questions about the new Act and what it could mean for your business - or about engaging with the Commission as they develop their programme of work – please get in touch.
