Bank Charges for Paywave

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#2516756 3-Jul-2020 13:22

Link to news article referencing the RBA review of payment fees https://nz.finance.yahoo.com/news/rba-looking-lower-e-payment-costs-024207422--spt.html

one of my staff is working for one of the banks on this.

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#2516990 3-Jul-2020 19:39

BlinkyBill:

Link to news article referencing the RBA review of payment fees https://nz.finance.yahoo.com/news/rba-looking-lower-e-payment-costs-024207422--spt.html

one of my staff is working for one of the banks on this.

Your news article is a 404, and even if it wasn't it would be totally wrong if you thought it looked at contactless payment fees.

The RBA's Payments System Board is merely following on from their previous reviews of the retail payments system to capture whether additional intervention is necessary with regards to things like Buy Now Pay Later services, Least Cost Routing, Interchange (again, though interchange is at the point where further compression could compromise the ability of banks to cover fraud) and merchant service fees (since every time the Bank regulates interchange, all it does is increase the profit to acquiring banks, who do not pass on the reduced interchange to merchants).

Again, there is no specific review of "paywave charges", never has been, never will be. Because contactless transactions are just transactions, and captured by existing regulations in all the same ways.

What is being reviewed is whether the Bank needs to step in and regulate where banks have dithered on introducing Least Cost Routing, which as I described before is a way for the acquirer to halt a transaction made using a dual-network card and direct it to the eftpos network to acquire rather than MasterCard or VisaNet.

They'll also be reviewing whether Afterpay and the like should be regulated due to the fact that a typical Afterpay merchant pays approximately 6% in fees, and is bound by a "no surcharge" rule from passing it on to the customer - the same type of rule that Scheme acquirers are forbidden by law from including in their contracts, and three party issuers (American Express, Diner's Club/Citi, UnionPay, and PayPal) all provided undertakings not to include in theirs.

Another one is whether Apple should be scoped in and regulated with regards to Apple Pay, which actually also has some of these banned behaviours in their own contracts (a bank issuing cards available in Apple Pay actually has to give a percentage of every dollar you spend with your Apple devices to Apple, and is forbidden by the contract from passing that cost on to merchants or cardholders, meaning every time you tap your iPhone Apple gets money, and your bank has to fund that out of what they charge everyone else). Google and Samsung do not take any of the interchange from the bank, so largely avoid scrutiny.

If you'd like a primary source to get started learning about what the Bank is actually doing, rather than continuing to mumble on about some nonexistent review of "paywave fees", please do have a read of the RBA's information page on it.

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#2517047 3-Jul-2020 20:43

There wouldn't be a week go by without seeing somebody talk about the "paywave surcharge". It certainly has become something people think exists, even though it doesn't.

The problem with accepting contactless is that it drives people from using EFTPOS to using their credit card, which means the merchant has to pay the interchange fees. If you're a dairy now that might be paying say $40 per month for your EFTPOS terminal hire and unlimited transactions, it's a big ask if that cost suddenly increases to maybe $200 if you start accepting credit cards as well.

Interchange fees in New Zealand are too high - these were reviewed in 2016 and 2017, and in August 2017 cabinet papers show Commerce Minister Jacqui Deane essentially put everybody on notice. These were going to be reviewed in July 2018 and it was expected that unless steps were taken, that the Govt would follow what Australia had done and regulate these fees along with bringing in restrictions around surcharges.

Unfortunately for NZ consumers Labour were then elected and decided the issue wasn't important. Every 6 months or so somebody in the media asks Minister Faafoi about the issue, but his lack of action so far shows that both he and Labour simply couldn't care less about the issue.

The issue is however complex - many NZ retailers opt for a blended plan which means they pay the same rate for all card types, when being on a non blended rate probably makes better sense for many. Banks give people the option, but like many financial decisions it requires people to understand what it means so they decide what is best for them.

Ultimately interchange is a big money go around that in most cases retailers are having to fund. Consumers spend $$$$ and get $$ back via card schemes funded by the retailer. Interchange *has* to exist, but it's pretty clear that the rates charged in NZ (even after the rate drops last year) are still way too high, and with the Government ignoring the issue nothing will change. Part of the problem for the Government is that they'll be seen as the people responsible for card schemes being slashed (when you suddenly get 50% of the Airpoints you did previously for example) because the average consumer simply doesn't understand how the schemes work.

Kyanar

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#2517065 3-Jul-2020 22:04

sbiddle:

There wouldn't be a week go by without seeing somebody talk about the "paywave surcharge". It certainly has become something people think exists, even though it doesn't.

The problem with accepting contactless is that it drives people from using EFTPOS to using their credit card, which means the merchant has to pay the interchange fees. If you're a dairy now that might be paying say $40 per month for your EFTPOS terminal hire and unlimited transactions, it's a big ask if that cost suddenly increases to maybe $200 if you start accepting credit cards as well.

Interchange fees in New Zealand are too high - these were reviewed in 2016 and 2017, and in August 2017 cabinet papers show Commerce Minister Jacqui Deane essentially put everybody on notice. These were going to be reviewed in July 2018 and it was expected that unless steps were taken, that the Govt would follow what Australia had done and regulate these fees along with bringing in restrictions around surcharges.

If the Commerce Commission does seek to regulate interchange, one would hope they actually bed down some intended outcomes first, and tie some benchmark analysis to validate that those outcomes actually eventuate. When the RBA regulated interchange and surcharging, they asserted a few intended outcomes, with varying levels of success:

Price signalling: the RBA believed that allowing merchants to pass on the surcharge would signal to customers the relative cost of accepting a payment, and steer them toward lower cost methods, with a secondary intent of driving acquirers to compete on price and merchants to seek out lower cost acquirers for card payments. The actual outcome is that merchants use it as a cost recovery mechanism for card payments rather than a price signal, despite that cash with a non-zero cost of acceptance is not surcharged. Mastercard has actually proposed the RBA analyse and publish on a regular basis the cost of acceptance for cash, and forbid surcharging greater than the cost differential. The last RBA review put cost of cash acceptance at 1.5%, meaning that surcharges would effectively be banned again except by law rather than contract. Perversely, allowing surcharging also removed the incentive for the merchant to seek out lower cost acquirers for card payments as well, as they do not bear the cost. Because it's passed on in full to the customer, they instead seek out payment methods that benefit them more, and have little or no regard for the actual cost of acceptance (see Square, with it's usurious 1.9% fees even on eftpos). And since acquirers have no direct relationship with consumers, and are competing for the business of merchants who do not care about the cost of acceptance, there is no incentive for them to compete on price.
Reduced cost of acceptance: the RBA also believed that the merchant service fee (MSF) and interchange were even slightly related, and that reducing interchange would reduce the effective MSF that merchants paid. In fact what actually happened was that since no-one except very large merchants had interchange plus pricing, the MSF stayed the same (NZ reports put the average NZ blended rate at 1.6%, which is quite comically the same rate as your average small business can get from CommBank or Westpac, and significantly cheaper than can be obtained from PayPal, Square or Windcave) - the acquirers simply pocketed more profit and the issuers lost revenue. As a result, Mastercard and Visa both point out that consumers have actually been slugged with over $480m in extra fees as a direct result of RBA's action. Further, the RBA asserted that reducing interchange would result in lower costs which would result in lower consumer prices. The actual outcome (and in fact as Mastercard points out, the only outcome) is that merchants have pocketed larger margins on products, with absolutely no change in shelf prices.
Reduced cross-subsidisation: the RBA asserted that in effect, with no-surcharge rules cash customers were subsidising card customers, which was an undesirable outcome. The RBA believed that removing no-surcharge rules, costs would go down on merchants and those would be passed on to customers paying with cheaper payment methods, with costs of higher cost payment methods borne by the users of them (once again, ignoring that cash is not free). The actual outcome was (and again, as Mastercard points out, the only outcome) is that prices at the register remained the same, and credit and debit users incurred additional costs which added to merchant bottom lines. In effect, card customers now subsidise cash.

By varying level of success, you might note, I actually mean absolutely none. In fact across the board, the Payment Systems Board regulation has achieved exactly zero of its objectives, and has had demonstrably worse outcomes for consumers. The intent is great, but it has been a dismal failure on every account.

Unfortunately for NZ consumers Labour were then elected and decided the issue wasn't important. Every 6 months or so somebody in the media asks Minister Faafoi about the issue, but his lack of action so far shows that both he and Labour simply couldn't care less about the issue.

The issue is however complex - many NZ retailers opt for a blended plan which means they pay the same rate for all card types, when being on a non blended rate probably makes better sense for many. Banks give people the option, but like many financial decisions it requires people to understand what it means so they decide what is best for them.

Ultimately interchange is a big money go around that in most cases retailers are having to fund. Consumers spend $$$$ and get $$ back via card schemes funded by the retailer. Interchange *has* to exist, but it's pretty clear that the rates charged in NZ (even after the rate drops last year) are still way too high, and with the Government ignoring the issue nothing will change. Part of the problem for the Government is that they'll be seen as the people responsible for card schemes being slashed (when you suddenly get 50% of the Airpoints you did previously for example) because the average consumer simply doesn't understand how the schemes work.

This is the rub. It's not really popular to be the government that regulated to increase fees and reduce rewards, so they won't touch it. The big issue there is the regulator in question isn't really an "independent" one. Australia has the advantage that the RBA doesn't really answer to the government, so it's seen as impartial at regulating. NZ's Commerce Commission is... not.

Geektastic

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#2517067 3-Jul-2020 22:09

sbiddle:

There wouldn't be a week go by without seeing somebody talk about the "paywave surcharge". It certainly has become something people think exists, even though it doesn't.

The problem with accepting contactless is that it drives people from using EFTPOS to using their credit card, which means the merchant has to pay the interchange fees. If you're a dairy now that might be paying say $40 per month for your EFTPOS terminal hire and unlimited transactions, it's a big ask if that cost suddenly increases to maybe $200 if you start accepting credit cards as well.

Interchange fees in New Zealand are too high - these were reviewed in 2016 and 2017, and in August 2017 cabinet papers show Commerce Minister Jacqui Deane essentially put everybody on notice. These were going to be reviewed in July 2018 and it was expected that unless steps were taken, that the Govt would follow what Australia had done and regulate these fees along with bringing in restrictions around surcharges.

Unfortunately for NZ consumers Labour were then elected and decided the issue wasn't important. Every 6 months or so somebody in the media asks Minister Faafoi about the issue, but his lack of action so far shows that both he and Labour simply couldn't care less about the issue.

The issue is however complex - many NZ retailers opt for a blended plan which means they pay the same rate for all card types, when being on a non blended rate probably makes better sense for many. Banks give people the option, but like many financial decisions it requires people to understand what it means so they decide what is best for them.

Ultimately interchange is a big money go around that in most cases retailers are having to fund. Consumers spend $$$$ and get $$ back via card schemes funded by the retailer. Interchange *has* to exist, but it's pretty clear that the rates charged in NZ (even after the rate drops last year) are still way too high, and with the Government ignoring the issue nothing will change. Part of the problem for the Government is that they'll be seen as the people responsible for card schemes being slashed (when you suddenly get 50% of the Airpoints you did previously for example) because the average consumer simply doesn't understand how the schemes work.

I tend to forget that people actually still use 'dumb' EFTPOS cards given the superior utility of Visa Debit cards which (in much of Europe at least) tend to fulfill the function performed here by EFTPOS cards.

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#2517089 4-Jul-2020 07:15

Geektastic:

I tend to forget that people actually still use 'dumb' EFTPOS cards given the superior utility of Visa Debit cards which (in much of Europe at least) tend to fulfill the function performed here by EFTPOS cards.

Banks only started pushing Visa / Mastercard debit cards because they made money from them (by way of interchange). A debit card doesn't offer anywhere near the functionality of a credit card, and for somebody like me would be totally pointless.

I've only ever carried one card for the last 20 or so years - that same card is my credit card and my EFTPOS card depending on which account button I push. This quite honestly is the perfect solution for 100% of payments, allows me to use the same card at 100% of retailers whether it is EFTPOS, online credit card, physical credit card chip+pin or credit card contactless. There is no need to reinvent the wheel when it already exists.

NPCtom

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#2517141 4-Jul-2020 11:32

Geektastic:

Is there any reason for the additional charge over normal eftpos?

The customer has half the required tech in the card and the retailer's unit often already has the other half in. What exactly is the rationale for any additional charge?

Don't contactless payments go through the Visa/Mastercard network? Hence the fees (also why your transaction comes up as "credit" on your receipt).

Where as normal EFTPOS payments are processed directly by the bank.

sonyxperiageek

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#2517166 4-Jul-2020 12:28

Kyanar: ... If the merchant in NZ chose interchange plus, they would actually be better off getting all credit card users to tap and forbidding inserting the card!

I'd be interested to know how many credit cards in NZ Don't have the PayWave/PayPass functionality on them. I don't think I've seen any current ones without it, and the older cards that didn't have them should've expired by now?

Because like you said, merchants in NZ paying ~ 0.5% for a Contactless payment vs 0.9% upwards for a standard Insert-the-card payment would be cheaper if they were on the Interchange Plus rates. And so they should then just block inserting the credit card. Win - Win - Win.

Sony

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#2517174 4-Jul-2020 13:13

Geektastic:

I tend to forget that people actually still use 'dumb' EFTPOS cards given the superior utility of Visa Debit cards which (in much of Europe at least) tend to fulfill the function performed here by EFTPOS cards.

I have both. I use the swipe eftpos card in machines I dont trust because it only goes into one account and if it gets skimmed then no big loss, pick a new one up at a branch and dont have to update all sorts of places that insist on storing card numbers instead of accepting paypal.

Use it at gull because those insert readers are actually reading the mag stripe on the card and I have no way to know if its tampered with and I doubt they have much security on them.

Use the swipe card whenever a place with an insert reader has it "malfunction" - a typical trait of one with a skimmer fitted so that you swipe it and they get the stripe contents. IMO its absurd that its an allowable fallback on chipped cards but the banks seem to be happy with letting things go thru as a clonable swipe and pin just because something didnt work in the chip reader.

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#2517183 4-Jul-2020 13:38

If there are no additional costs, what extra fees are they talking about in this article? https://www.tvnz.co.nz/one-news/new-zealand/kiwi-retailers-turning-their-backs-paywave-due-high-transaction-costs

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#2517187 4-Jul-2020 13:48

It's poorly written stories like that which cause the misinformation about higher fees.

As I wrote about above the problem is retailers that have contactless see a move from EFTPOS to credit card transactions due to the convenience of contactless.

The "extra fees" in this story aren't because contactless costs more, it's that credit cards cost more, and they would have seen a switch from EFTPOS to credit card transactions when they offered contactless.

There are a few retailers I use regularly who have removed contactless in the past year or so. They still accept credit card, so n principle I always now use my credit card rather than EFTPOS (since they are the same card for me, and just a different account) just so they have to still pay.

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#2517189 4-Jul-2020 13:54

Kyanar:

By varying level of success, you might note, I actually mean absolutely none. In fact across the board, the Payment Systems Board regulation has achieved exactly zero of its objectives, and has had demonstrably worse outcomes for consumers. The intent is great, but it has been a dismal failure on every account.

The irony for NZ is that some of the reasons we're in the situation we are today is because of the 2008/2009 legal action taken by the Commerce Commission against Visa and Mastercard. All of their press releases at the time claiming how great decisions were and how consumers would benefit have turned out to equate to nothing but hot air.

Visa and Mastercard simply own3d the Commerce Commission in subsequent years - when the Commerce Commission jumped for joy forcing down the interchange rates of high end cards (Gold cards were the highest in 2008), the response from the card companies was to simply introduce Platinum cards a couple of years later at a new higher interchange tier, and incentivise banks to hand these out like candy.

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#2517193 4-Jul-2020 13:59

sbiddle: it's that credit cards cost more, and they would have seen a switch from EFTPOS to credit card transactions when they offered contactless.

So the real problem here is banks not issuing contactless (non-credit, non-debit) standard EFTPOS cards?

Oblivian

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#2517194 4-Jul-2020 14:05

gzt:
So the real problem here is banks not issuing contactless (non-credit, non-debit) standard EFTPOS cards?

No. Read the last few pages.

It's the infrastructure in place

Debit/Credit = 1 path. Eftpos another.

Contactless = Automatically debit/credit path

1 incurs more risk. And per transaction costs

Eftpos doesn't

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#2517197 4-Jul-2020 14:19

gzt:
So the real problem here is banks not issuing contactless (non-credit, non-debit) standard EFTPOS cards?

There is no such thing - contactless EFTPOS doesn't exist.

Technically such a solution could be deployed very easily - but there are multiple issues, with one of the challenges being who will pay for the fraud. Fraud on credit cards can be in part funded by interchange and other fees, and while contactless per se hasn't seen credit card fraud levels increase, the simply reality is it would introduce a level of fraud to the EFTPOS network which poses the question of who should pay for that fraud with customers expecting they won't be liable.

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