Banks are beginning to detail the impact on credit card loyalty and rewards schemes of the Government's move to regulate interchange.
Kiwibank has unveiled increases to account fees, and says credit card customers will have to spend more to achieve current earn rates through Airpoints credit cards.
ANZ New Zealand has also announced changes to credit card rewards, detailed below, while BNZ has also outlined plans to make changes. A Westpac NZ spokesman said the bank "currently" has no announcements to make on cardholder rewards. And ASB announced changes to its credit card rewards scheme last month, but said it would rethink them after customer feedback.
On Tuesday Kiwibank said as a result of changes to credit card regulations, which take effect in November, it's "needing to adjust the fees and some of the benefits it offers on its credit card products to ensure viability." A Kiwibank spokeswoman told interest.co.nz the financial impact on the bank of the regulatory changes is commercially sensitive.
For Kiwibank's Air New Zealand Airpoints Low Fee Visa, for example, the six monthly account fee is doubling to $25 from $12.50. And customers will have to spend $200 to earn one Airpoints dollar, up from $160 now. For its Air New Zealand Airpoints Standard Visa the interest rate on purchases and cash advances will drop to 16.90% per annum from 20.95%.
The full details on Kiwibank's changes, including for standard and platinum cards, are here.
"We know our customers love credit card rewards. These changes are about making sure we can continue to fairly reward customers for everyday spend while ensuring the viability of our offerings," Kiwibank General Manager of Retail Products Fiona Ehn said in a statement.
“Many of the great features our customers value will stay the same, such as the market leading status points earn rate, travel insurance on our platinum card, and koru membership discounts," Ehn said.
BNZ promises new loyalty scheme
BNZ recently announced changes to its rewards options for customers, including a new loyalty scheme - BNZ Rewards - rewarding customers with BNZ Points for their spending.
Karna Luke, BNZ's Executive for Customers, Products and Services, said the bank is moving beyond points for spending on credit cards, and will instead focus on "recognising the relationship we have with our customers and providing broader benefits."
“Alongside their spend, we’ll be rewarding customers with BNZ Points for their activity, like activating their online rewards dashboard, the products they have with us, and much more,” said Luke.
At the moment BNZ offers two options for rewards on credit cards – Flybuys and Cash Rewards. BNZ says customers currently on Flybuys will continue to earn Flybuys Points at the same rate unless they opt into earning BNZ Points.
Meanwhile, customers on Cash Rewards will be automatically migrated over to BNZ Rewards and will begin earning BNZ Points at the Cash Rewards rate.
A BNZ spokeswoman said more information will be available for customers about broader ways to earn and spend before the end of the year, noting "our customers can be reassured that their earn rates and fees will be remaining the same."
As with the Kiwibank spokeswoman, the BNZ spokeswoman declined to detail the financial impact from the new regulation, labeling it commercially sensitive information.
ANZ's changes
ANZ has also unveiled a series of changes to its ANZ CashBack credit cards, including the CashBack Rewards programme, beginning on October 29. These will be communicated to customers over the next two weeks, and reflect the impact of the Retail Payment System Act plus investment in digital and fraud initiatives, ANZ said.
"The updated rewards programme means a customer who holds a CashBack credit card and has a high spend volume will earn lower CashBack rewards. However, as customers will earn CashBack dollars on every eligible purchase they will earn more on lower spend volumes," an ANZ spokeswoman said.
"For example ANZ CashBack Visa card holders who spend $9000 will earn $60 Cashback dollars where previously they earned $45. These Cardholders will also also benefit from a $20 reduction on their annual card fee. ANZ Visa Buiness CashBack cardholders who spend $9000 will earn $100 CashBack dollars where previously they earned $45."
The full details of ANZ's changes can be seen via the link below.
Labour delivers on promise with new Commerce Commission powers
Changes to banks' credit card rewards schemes come with the Retail Payment System Act (the Act) set to take effect from November. This will see the Commerce Commission regulating interchange, bringing NZ in line with comparable countries such as Australia, which have regulated interchange for years.
The Act follows a 2020 election campaign promise by the Labour Party, which said if returned to government it would regulate merchant service fees charged to retailers and other small businesses by their banks. For small and medium sized businesses (SMEs) card acceptance fees can be the third highest cost of doing business after wages and rent. As well as saving SMEs money, the idea is that reducing these fees should also ultimately flow through to consumers.
Commerce and Consumer Affairs Minister David Clark has said government estimates put savings for merchants at about $74 million per annum within the first year of the Act taking effect. If these savings are passed on by merchants to consumers, this will reduce "the regressive wealth transfer" between users of lower-cost payment methods and high-cost payment methods.
Interchange is the biggest part of a broader merchant service fee charged by card issuing banks to their business customers. According to a government regulatory impact statement, interchange can be 70% to 80% of the merchant service fee. However, each bank sets its own interchange rates within a cap set by Visa and Mastercard, whose cards the banks issue.
Interchange fees for credit card transactions will be capped at 0.8% of the transaction value, and interchange fees charged for online debit card transactions will be capped at 0.6%. This is in line with Australia. Retail lobby group Retail NZ has said small retail businesses can pay fees of more than 2% for credit transactions. Additionally many retailers have been on blended rates of more than 1.6% for all transactions including contactless debit.
Contactless debit card interchange fees will stay at their current levels of 0.2% or less, and swiped and inserted debit transactions such as EFTPOS, will remain fees free for merchants.
Kiwibank says its business customers will automatically get the benefit of reduced interchange rates when the new rates take effect in November.
A 'regressive cross-subsidy'
In 2016 the Ministry of Business, Innovation & Employment (MBIE) estimated merchants had to increase prices to all consumers by about $187 million annually to fund rewards paid to certain credit card users.
"Because of the way credit card reward schemes are structured, this leads to an annual regressive cross-subsidy of $59 million from low income to high income households. These costs are ongoing, so they add up over many years," MBIE said.
The government regulatory impact statement set out that individual consumers being incentivised to use higher cost payment methods isn't necessarily a problem for them given they receive benefits for higher costs.
"I.E. a consumer may be willing to pay a surcharge for the use of a credit card, in return for rewards points accrued from the use of that credit card. For individual consumers, the costs can be outweighed by the benefits when rewards and the provision of credit are factored in."
However, the problem is when consumer preferences for higher cost payment methods impose higher costs on merchants, who may then choose to recoup these by increasing prices on goods and services or surcharging.
"This is a problem because it means that all consumers pay the same higher prices even when they use lower cost payment methods. This results in a wealth transfer from the users of low cost payment options to users of high cost cards, likely to be on high incomes due to issuer rules or higher annual fees," the regulatory impact statement said.
"This perpetuates the economic inefficiency of the current retail payments system because it means that users of low cost payment methods essentially fund reward schemes for users of high cost payment methods, rather than matching up the costs and benefits of those different payment types to their users. This cross-subsidisation compounds the inequities within the retail payments system." (There's more on this here).
Visa and Mastercard, meanwhile, run their NZ revenue through Singapore where they pay very low tax rates due to sweetheart tax deals.
*In 2020 I wrote a five part series on the NZ retail payments system. Part five, which ties the series together, can be found here).
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
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