Back in May, the Government signalled an intention to introduce a Retail Payments System Bill (RPS Bill) to regulate and reduce merchant service fees within the retail payments system. The Minister of Commerce and Consumer Affairs, Hon Dr David Clark, explained that the RPS Bill would:
- require reductions in interchange fees;
- enable direct intervention by the Commerce Commission to regulate different participants in the retail payments system in specified areas; and
- introduce a disclosure and reporting requirement to enable the Commerce Commission to monitor the retail payments system.
While we are yet to see the RPS Bill in its entirety, last week the Ministry of Business, Innovation and Employment (MBIE) released a Cabinet paper containing more information on what the new regulatory regime will involve. Here’s a quick rundown:
Background to the RPS Bill
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.
Merchant service fees – the fees that banks charge businesses when customers use a credit or debit card to pay – tend to be higher in New Zealand than in many other jurisdictions. A key component of merchant service fees is “interchange” - a variable fee set by card providers. By legislating to cap these fees and enabling the Commerce Commission to regulate the retail payments system, the Government intends to deliver benefits to merchants and consumers, and to allow for efficient competition between payment providers and payment products. This will be another significant addition to the Commerce Commission’s ever-expanding remit.
The new regulatory regime will be based on a designation model. The primary legislation will define the retail payments system in a broad sense and allow for designation of Retail Payment Networks (RPN) operating within that system. The RPS Bill will also define retail payments system ‘participants’ to include payment service providers, infrastructure providers and network operators who are integral to the operation of a RPN. The Cabinet paper recommends an initial RPN designation for the Mastercard and Visa schemes and corresponding pricing standards (i.e. caps on interchange fees) to be included in schedules to the RPS Bill.
The Commerce Commission will also be able to issue determinations to impose access regimes on parts of RPNs. This would allow the Commission to require access for new participants to operate in certain aspects of RPNs, for example by allowing access to RPN infrastructure. The Minister considers that regulating access regimes will increase competition and help to reduce merchant service fees.
Merchant service fees are frequently passed on to consumers through higher prices or surcharges. In an initial MBIE consultation paper, some stakeholders proposed that surcharging should be prohibited altogether as it may not be justified where merchant service fees are regulated. However, the RPS Bill will not prohibit surcharging. Instead, the Minister proposes that the Commerce Commission utilise the existing prohibition on misleading conduct under the Fair Trading Act 1986 to set standards as to how payment surcharges can comply with the law. The standards will have legal effect and outline what can and cannot be factored into a surcharge.
Pecuniary penalties, injunctions, and other court orders including damages and compensation are likely to be made available under the RPS Bill. The Minister proposes that pecuniary penalties for retail payment‘participants’ be consistent with those applying to similar compliance failures under the Commerce Act 1986, Fuel Industry Act 2020 and Financial Market Infrastructures Act 2021. Penalties under the RPS Bill could range from $15,000 – $500,000 for an individual, and $150,000 - $5 million for a body corporate, depending on the type of breach.
We will provide an update on the proposed Bill once it is introduced to Parliament. In the meantime, if you would like more information on the new regulatory regime and what it could mean for your business, please get in touch.