Credit card rewards come at cost
Poorer households in New Zealand are subsidising higher-income households to the tune of $59 million a year through credit card reward schemes, says an issues paper from the Ministry of Business, Innovation and Employment.
The paper estimates that the total cost of merchants increasing their prices to fund rewards for credit card users is $187m a year. The total additional cost to the economy of the current system is put at $45m per annum.
Credit cards make up 42 per cent of transactions by value, 36 per cent of transactions are through eftpos, 15 per cent by traditional debit card and 7 per cent by contactless debit card.
The report noted that New Zealand has the lowest proportion of cash in circulation compared to the size of its economy of anywhere in the world. Merchants in New Zealand appeared to pay higher fees to accept payment via credit card than merchants in some overseas countries, including the European Union and Australia.
It also warns that similar dynamics are starting to emerge with debit cards, with contactless and online debit card use rising from 2 per cent of transactions two years ago to 15 per cent today. It estimates that fees to merchants could rise by $216m a year if contactless transactions rise to 60 per cent of debit payments.
Smaller merchants are also paying more, the report says.
Greg Harford of industry lobby group, Retail NZ, welcomed the paper. “Fees in New Zealand are continuing to increase, while in other comparable jurisdictions, they are going down over time.”
However, Karen Scott-Howman, chief executive of the Bankers’ Association of New Zealand took issue with the report’s assumptions, “It’s not correct to say that businesses will always pass on merchant service fees to consumers through the price of goods and services. It’s up to individual businesses to decide how they set their prices.”
Payments NZ declined comment.