Worldline NZ calls for NZ to mimic Australia by giving merchants the ability to route dual-network debit card transactions to the lowest cost network

Worldline New Zealand, formerly Paymark, wants NZ to follow Australia's lead and promote payment cards with both Visa or Mastercard and Eftpos capability, thus offering merchants the choice of where transactions are routed for processing.

Payments company Worldline, whose products include Eftpos and online Eftpos, suggests this in a submission to the Commerce Commission on its draft guidance for the initial pricing standard proposed by the Retail Payment System Act. The Act includes plans to regulate interchange* in an effort to reduce merchant service fees. (More detail and all submissions are here).

In a series of articles in 2020 on NZ's retail payments systems, I suggested the Government should look closely at dual-network debit cards and least-cost routing, among other things, in a roadmap for regulating the retail payments sector.

In its submission Worldline points out the Reserve Bank of Australia (RBA), which oversees Australia's payments system, strongly supports that payments cards should have dual network capability for the Visa and Mastercard schemes plus local Eftpos so merchants can choose which processor they use.

Worldline notes the RBA expects least-cost routing to bring down payment costs by; giving merchants the ability to route dual-network debit card transactions to the lowest cost network, and increasing the competitive pressure between Eftpos and the schemes to lower processing fees.

"In August 2022, the RBA announced a further policy measure relating to least-cost routing whereby 'given the rapid ongoing growth in mobile wallet transactions and the benefits for competition and efficiency in the payments system, the industry is expected to develop least-cost routing functionality for mobile-wallet transactions. This decision followed recent indications that implementing least-cost routing for mobile-wallet transactions would be more feasible and less costly than previously indicated'," Paymark says.

"Eftpos, in Australia, is more like a scheme, it follows the four-party model, than Eftpos in New Zealand, three-party model. That means the Australian initiative cannot be directly transferred to New Zealand, but we can easily adapt the concept and implement something similar."

"New Zealand scheme debit cards already have dual capability – if contactless is used, transactions are sent to the acquirer, the schemes, and if they are swiped or inserted, they are sent to the issuer, Eftpos. There’s no need for the New Zealand banks to issue new cards to provide for least-cost routing," says Paymark.

"Least-cost routing can be enabled for all debit cards, including contactless, at the network level via the payment terminal. Giving merchants this choice could be introduced quickly and simply by directing that industry rules be changed to allow contactless transactions to be sent to the issuer."

Paymark argues that having this choice would be an effective way to reduce costs and to "affect a step change" allowing the payments industry to prioritise, and focus on, the future of payments.

"Instore, low value debit transactions are low risk when it comes to fraud. There is little need to utilise the dispute resolution/chargeback services provided by Visa and Mastercard. Merchants should not be made to pay more for services they do not need. And, if merchants use local processors to switch these transactions to the issuer, consumers will not be surcharged,' Worldline adds.

Ultimately, Worldline argues, merchants should be able to choose which cards to accept and how those transactions are processed.

"If merchants do not have choice, consumers may end up paying more than they should for the price of goods and in surcharges," Worldline says.

*Interchange fees are charged by the financial institution on one side of a payment transaction to the financial institution on the other side of the transaction. A typical card transaction involves four parties being the cardholder, the cardholder's financial institution (the issuer), the merchant and the merchant's financial institution (the acquirer). For most card transactions, the interchange fee is paid by the acquirer to the issuer. Visa and Mastercard point out interchange doesn't generate revenue for them. However it underpins and grows their networks, meaning more transactions for them to clip the ticket on. And critics argue it drives up costs for merchants and ultimately consumers too with Retail NZ, the retailers' lobby group, describing "a wealth transfer from New Zealanders to foreign-owned banks and credit card companies."

*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.