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October 07th 2022

Will New Zealand’s Upcoming Interchange Caps Rival Australia’s?

In New Zealand, new interchange caps are set to go into effect by November 13th and are expected to bring merchants around NZD 74 million in annual savings.¹


A study conducted by Retail NZ found that New Zealand retailers often pay double the cost for these fees compared to their Australian counterparts. But can these caps truly deliver this benefit, and will these caps amend the cost difference between New Zealand and Australian merchants?

The Cost of Payments in New Zealand

Average merchant service fees (MSFs) – fees charged to retailers whenever customers transact using a payment card – can be significantly more expensive in New Zealand compared to many other countries (Figure 1). Interchange fees are often the largest component of MSFs and, at a time of record inflation,² new interchange caps have the potential to lower the overhead New Zealand’s merchants shell out regularly for payment acceptance.

Figure 1. Average Merchant Fees By Country Pre-Regulation³

A new bill passed in the New Zealand Parliament enforces a 0.80% interchange cap on consumer credit and 0.60% on online debit⁴ and is promised to save merchants NZD 74 million annually. The bill’s author cites how much higher New Zealand’s interchange is in comparison to Australia’s as a key motivating factor,⁵ but there are still three key differences in interchange that remain between the two countries post-regulation.

Table 1. New Zealand November Interchange Caps vs. Australian Interchange Caps

For a full list of impacted interchange rates, get in touch with us.


New Zealand’s 0% Interchange Cap

Although the 0.80% credit cap in New Zealand is in line with a similar cap in Australia, debit interchange in New Zealand is tiered depending on the consumer’s card being contactless or online – unlike Australia’s, which is the same for all debit interchange rates. Currently, inserted and swiped debit is the predominant way of making in-store payments, but recent trends suggest this may be changing. In 2020, the New Zealand government released Covid-19 mandates requiring all consumers to make only contactless or online transactions⁸, in effect forcing many merchants to adopt contactless terminals and open online channels to continue to do business. As seen in Figure 2, by the end of the year, around 52% of terminals were contactless-enabled, and domestic online spend increased by 44% (in total, around NZD 4 billion in ecommerce spend). ⁹ New Zealand’s 0% interchange cap for contact debit provides many local merchants with substantial savings and a cost-effective way of payment acceptance. If the volume in New Zealand continues to shift to other interchange tiers, merchants may still be in danger of paying for more costly debit interchange than Australian merchants in the long term.

Figure 2. Contactless Enabled Terminals in New Zealand from 2017-2020¹⁰


Australian Merchants Save Big from Competitive Routing

Unlike New Zealand merchants, Australian merchants have additional savings that can be achieved with least cost routing (LCR). The regulatory authorities in Australia have been guiding the local industry to develop LCR capabilities, enabling merchants to dynamically route their transactions down the most cost-effective scheme. This functionality alone is expected to provide Australian merchants with around $837 million annually in savings,¹¹ further reducing the average cost of Australian interchange as merchants implement LCR. CMSPI works with Australian merchants on their LCR strategy to fully optimize these savings and, as a result, these merchants can achieve much lower rates than current estimates.


Tackling Fee Transparency

Not all merchants get the same level of transparency from their merchant service fees – which are an assortment of interchange, network, acquirer, and terminal fees. Many New Zealand merchants are still on blended rates,¹² meaning these fees are not transparently itemized and are extremely difficult – if not impossible – to effectively audit without external benchmarks. Even with interchange caps and other levels of transparency in place, these savings still run the risk of acquirer absorption and may not be fully passed on to the merchant. CMSPI finds that around 1 out of 2 merchant invoices contain mischarges, leaving it up to the merchant to guarantee they truly receive the benefits from these caps.

What’s Next for Merchants?

Payments regulation in both New Zealand and Australia provides significant potential for merchants in both countries - but these savings are not guaranteed. Retailers should be asking themselves… How will you guarantee that the promised interchange savings are truly passed down? Are your transactions continuing to shift to more expensive interchange rates? When was the last time you audited your invoices?

Without a proactive payments strategy, merchants may continue to pay a disproportionate share of interchange compared to others abroad. CMSPI, through its work with leading retailers, works to audit and critically assess these arrangements with data-driven analysis and industry-leading benchmarks to build a payments strategy fit for the long run.