Finance

Payments experts call for regulation

Payments industry experts have called on the Government to regulate their sector, but Minister Kris Faafoi is reluctant to do that until he has talked to Visa, MasterCard and the big banks, Dileepa Fonseka reports

Contactless payment systems and credit card fees have become hot topics during Covid-19 as the technology behind it has become more crucial for maintaining public health. 

Banks announced they were wiping Paywave fees on debit cards, but not credit cards, and raising limits to enable more contactless transactions. Government and supermarkets told consumers to use contactless payments where possible to stop the spread of Covid-19.

New Zealand has higher "interchange" fees for Paywave than regulated markets like Australia and the United Kingdom and the Government has held back from regulating in the hope the banks and credit card companies and payments systems providers would take voluntary action.

It hasn’t worked.

Australia’s Reserve Bank has regulated card fees there, allowing all retailers to use contactless without the fear of massive and unexpected bank fees. It has allowed train and bus networks to adopt contactless cards in Australia. The same is the case in Britain, where the Government intervened to regulate fees. 

So, while debit card Paywave fees have been wiped and contactless payment thresholds have been raised here, high credit card interchange fees have stayed. And that's kept "no Paywave" signs firmly in place on EFTPOS machines in dairies all around the country.

Commerce Minister Kris Faafoi said he wanted to start a dialogue with credit card companies on the issue, but expressed a reluctance to "jump straight to regulation" along the lines seen in the UK and Australia.

"I think there needs to be a conversation with those who are responsible for some of those contactless fees..because commerce in the future is looking a lot more contactless."

However, Buddle Findlay consultant Simon Jensen, a prominent payments industry lawyer, said Australia had achieved higher 'contactless' use by allowing its Reserve Bank to regulate fees for payment systems.

"Because of the way they've regulated they have a much-higher uptake on contactless because it's cheaper."

"And because they've been able to make it cheaper they probably have better access."

"Rather than relying on general competition and other regulatory powers it makes sense to have specific targeted powers to intervene and to make rules."

He suggested changes to those fees could form part of a newly expanded Financial Market Infrastructures Bill, if Parliament was willing to take more time with the law.

Financial infrastructure

The FMI bill aims to support the infrastructure behind non-cash payments and financial settlements that are crucial for the economy to function.

Its focus isn't credit card fees, but it does aim to keep critical financial infrastructure going in the event of a failure.

However, narrow criteria attached to the bill means it won't give the Government power to step in and keep credit card systems functioning in the event of a failure overseas.

The law as it stood would regulate organisations like the NZX in the case of financial markets and Payments NZ in the case of non-cash payment systems like credit cards, but would exclude any regulation of credit card companies themselves.

Payments NZ CEO Steve Wiggins said, unlike the NZX, his organisation owned none of the underlying infrastructure behind payment systems used by the public. Credit card companies and the banks were the ones in charge there.

"We acknowledge the move internationally for payments regulators to have greater powers," Wiggins told the select committee.

"We support the strengthening of the Reserve Bank's oversight of financial market infrastructures to more closely align with other jurisdictions."

"We do not own any or operate any infrastructure and our rules..[are] in effect a multilateral contract."

Buddle Findlay lawyer Simon Jensen said that left a hole with FMI, which was meant to allow for the smooth functioning of the economy in case the financial infrastructure supporting it failed.

"Increasingly, because Visa and Mastercard are effectively taking over the New Zealand EFTPOS system at the same time, we will be outsourcing our core consumer payment system offshore."

"And so we are vulnerable to problems offshore." 

Regulate them too

Both Jensen and Wiggins spoke to the Finance and Expenditure Select Committee on Wednesday morning about the need for the Reserve Bank to be given greater powers to regulate Payments companies.

Jensen said the Reserve Bank should have "backstop" powers in case companies like Visa or Mastercard didn't behave in the future.

"You wouldn't use it at first instance particularly. But you'd have it there if things went wrong."

Broadening the bill would add an extra year to its passage, but the Government could afford to take its time.

That would mean it could be integrated with another review being run by the Reserve Bank and Treasury for a "once in a generation" upgrade of the supervision of banks and other financial agencies.

"We have an opportunity right now if we defer this and put it into the same bucket as the review of the banks and non-bank deposit taker regime, to get a consistent regime across all elements."

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