Wellington ice cream shop Kaffee Eis announced last week that it will no longer use the Paywave system after being stung with $20,000 in fees in just over a year.
Managing director Karl Tiefenbacher said that merchant fees had been more than they expected, and that “the second that we saw the numbers” he decided to drop the service.
"It means that the costs we are paying just way outweigh the benefits of having Paywave," Tiefenbacher said.
He also said that so far consumer feedback has been positive, and that most customers were aware of Paywave fees.
“Customers want to be able to pay using their cards, and increasingly want to be able to use contactless cards or things like ApplePay to make their purchases," said Retail NZ's general manager of public affairs Greg Hartford. “New Zealand retailers typically don't pay for standard Eftpos transactions, while they do pay a fee every time a customer uses a credit card or a contactless debit card. “Many retailers have chosen not to accept contactless payments because there is a cost for them in doing so, while there is no cost if that debit card is inserted into a machine and treated like an Eftpos transaction.”
Other companies have tackled the issue with novel solutions. MOJO Coffee developed an app with a unique QR code for each customer, linked to their card, that they can scan at the counter. “If we rolled [Paywave] out it would be over $100,000 a year for us, probably $150,000,” said MOJO general manager Katy Ellis. “[The app] makes it really easy for customers ... they don't have to worry about having their wallet with them.”
While MOJO has Paywave at a few location, Ellis said there is no intention of rolling it out any further.
“Some people would say it generates quicker sales and things like that, but we haven't really seen much evidence of that.”
Kaffee Eis is not the first food outlet to drop Paywave, nor are they the biggest. Burger King made waves last year when it decided to also stop offering the service due to “exorbitant bank charges.”
“Merchant service fees in New Zealand are too high,” Hartford said at the time. “There’s no obvious reason for charges here to be two or three times more than in Australia or the UK.”
“Visa and Mastercard have both taken steps to reduce some interchange rates, but there hasn’t been enough time to assess how much the interchange reductions have impacted overall merchant service fees paid by retailers,” he said. “We expect that, even with the changes, rates in New Zealand will still be higher than in Australia and the UK.”
In a speech to the Payments NZ Conference last year, Minister of Commerce and Consumer Affairs Kris Faafoi acknowledged that while they adversely impact smaller businesses, both Visa and Mastercard had taken steps in 2018 to make interchange rates fairer.
“I do not think further increases are in the interests of consumers or the wider economy,” Faafoi said. “I have chosen not to go down the route of Australia or the European Union in respect of regulating interchange fees. However, that option remains very much on the table, particularly if I were to see fees increase again.” He also demanded an ongoing commitment from banks and schemes to increase the transparency of costs associated with retail payments and continuing to educate merchants.
A report from the Commerce Commission in 2013 concluded that interchange fees would continue to rise but didn’t find any reason to intervene, opting to recommend “alternative regulatory intervention.”
Retail NZ estimates the hidden cost of payment systems to be around $380m every year, and forecast a rise to $711 million by 2025. However, the Bankers Association disputes these numbers. “Whether or not retailers choose to pass those costs on to consumers is up to them,” said chief executive Karen Scott-Howman. “It’s inaccurate to say that all retailers raise their prices to cover those costs. Some may do so, while others may absorb it as a cost of doing business.” She also noted that countries where fees have been regulated saw no reductions passed on to the consumer.