Most of the analysis seemed predicated on an assumption that retailers could neither impose surcharges for card transactions nor avoid accepting cards.
So I started taking pictures of EFTPOS terminals with tape over the credit card button or with obvious signs noting credit card surcharges to accompany my submission on it. The MBIE paper seemed to take "Well, anything's possible in two-sided markets so we should regulate" approach.
Now it's ComCom that's proposing to regulate credit card interchange fees.
But they did commission a couple papers.
And this seems a key bit:
Now it's ComCom that's proposing to regulate credit card interchange fees.
But they did commission a couple papers.
And this seems a key bit:
Moreover, it is theoretically argued that if the no-surcharge rule is lifted, interchange fee regulation is harmful for total welfare. Regulatory attention should in this case shift to merchants, rather than focusing on card networks. If surcharging is to be allowed, the optimal cap is equal to the merchant fee minus the merchant’s convenience benefit from card payments. In other words, the merchant should not surcharge more than his own incurred “transaction” cost of a card payment. This result is perfectly in line with the proposed “merchant indifference test” or “tourist test” to optimally cap merchants fees keeping the merchant indifferent between a cash payment vis-à-vis a card payment. Yet, recent cost-based surcharge regulations seem too lenient, as they allow surcharges up to the merchant fee – or even higher (Gomes and Tirole, 2018).
And remember that NZ retailers can set surcharges if they want. All of us see them all the time. Maybe John Small doesn't.
It then goes on to note evidence from other countries about smallish proportions of transactions attracting surcharges.
But think about it for a minute.
High volume retailers have some power in those relationships. You might expect that surcharges imposed on transactions at the grocery stores would be lower than the surcharges in other places. And it wouldn't just be about the supermarkets being big enough to have some heft. It would also be about the cost of providing the ancillary services that credit cards provide. You're going to be a lot less likely to see chargebacks for undelivered or unsatisfactory goods on a weekly grocery shop than you might for a mail order shipment that's gone wrong or, say, payment for your kid's trip out to space camp. Credit cards provide insurance; EFTPOS doesn't. That insurance is valuable, but more valuable in some cases than others. Those differences matter and I'd expect affect the charging structure that the card companies set. Nobody's doing a credit card chargeback if there's a broken egg in the darned carton when you get home.
Another key bit, if you remember that NZ retailers very regularly set surcharges for credit cards.
Moreover, many payment networks have frequently imposed restrictive – and potentially “regressive” rules – on the merchant side, such as no-surcharge rules or honor-all-cards rules.31 Effectively, this implies that payment cards that are more expensive for merchants to accept, such as credit cards, will be cross-subsidized by cheaper means of payments such as debit and cash. As high-income consumers are the ones most likely to hold and use cards with higher reward schemes that are more expensive for merchants to accept, the cross-subsidies between the payment methods are regressive transfers from low-income consumers to high-income consumers (Felt et al., 2021; Wang, 2023).
I remember MBIE relying on this kind of argument in making its case, seemingly unaware that NZ retailers can and do set those surcharges. Hence my photography while out grabbing lunch.
If ComCom tightly restricts credit card fees, expect a whole pile of services currently bundled with card transactions to disappear.
It's annoying when there's a world of real problems that need to be dealt with and agencies like ComCom go off on these kinds of tilts.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
3 comments:
Time to resurrect cash.
This cashless society gig has had its day and proven to be a rort. Consumers have to pay to pay.
By using card consumers minimise transaction costs but are penalised for it.
For my part I prefer to save my money which of course offends those who want consumers to spend and maintain the money go round.
Save like the simple things of not buying coffee to the bigger consumer items where my purchasing is managed. And no, my life is not miserable as a result and I am not missing out on life - just surcharges.
i don't understand what comcom is trying to do here (other than use its monopoly position as a regulator - how ironic).
merchants are expected to display the surcharge upfront - i have seen most of them comply. i can choose to use card with tap (and pay the fee) or insert/swipe with pin (and avoid that). what more competition do they want?
as far as the surcharge amount paid by the retailer, they can opt for visa or mc or both or none. yes, it's a duopoly - but then so is everything else in nz. why is this one a higher priority than the one that impacts consumers most?
Hmm, Eric makes a strange comment - no one claims on a broken egg. Actually I think lots of people check their supermarket deliveries and claim back on broken or missing items for credit card refunds from the supermarket. Countdown has an automated bot that you use - so obviously lots of demand
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