Bank boss calls for competition probe into credit card market

Personal Finance

Credit card market 'a real area of customer harm', says The Co-operative Bank's CEO David Cunningham

11th Dec 18, 5:00am by Gareth Vaughan

By Gareth Vaughan

On the heels of its probe into the retail fuel market, the Commerce Commission should turn the attention of its new market study powers to the credit card market, says The Co-operative Bank's CEO David Cunningham.

Cunningham told interest.co.nz that when he heard news of the competition probe into the retail fuel market he thought "next stop credit cards."

"I think that's a real area of customer harm. I I think about the conduct and culture of banks, and doing right by customers, how is it that $4.5 billion of borrowing is via credit cards at an average interest rate that New Zealanders are paying of 17.9%?" Questioned Cunningham.

"Why isn't it that banks are saying 'you should not be in that product we're going to move you to a 13% product'," Cunningham added.

"If that $4.5 billion was at that [interest] rate that's $200 million [customers save]. So I stand back and go 'that's the harm that banks are doing to customers.' So I think there's a lack of competition in areas like credit cards in particular."

Credit cards are a "gravy train" for banks, he added.

Cunningham's comments come after interest.co.nz recently argued that, if the Financial Markets Authority and Reserve Bank are serious about making the banks they regulate consider their customers' long-term outcomes, they could start by taking a look at the credit card market.

The Co-operative Bank launched a credit card two years ago, charging annual interest of 12.95% for both purchases and cash advances. At that time Cunningham's predecessor Bruce McLachlan said credit card interest rates and fees "have been ridiculously high for too long." The Co-operative Bank now has about 16,000 credit card customers.

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34 Comments

by Mrs The Point | 11th Dec 18, 8:32am 1544470374

This would be such an easy win for the Govt. Set up their 1000th working group to have a look at CC interest rates. Report back in just 2 years, right before the election and say they are going to fix this once elected.

by murray86 | 11th Dec 18, 8:39am 1544470760

Another part that should be looked at is the 2% surcharge on transactions. Credit cards are turning into such a rip off. Choice is turning people away from them but those that still use them are still getting shafted!

by NoFax | 11th Dec 18, 9:27am 1544473679

The "surcharge" or merchant fee is charged by Visa or Mastercard - it's higher for AMEX and that's why fewer places take it.

by RickStrauss | 11th Dec 18, 9:31am 1544473919

More shops should simply offer the PB Tech option. A regular price, and a price plus 2% or 3% for credit card transactions. Just make it transparent to people instead of building it in to prices.

by sammnz | 11th Dec 18, 9:50am 1544475018

No they shouldn’t, the price you see should include all fees similar to how you cannot advertise something without gst on it. I have noticed the post shops are doing that too and it’s definitely a rort. Include the fees in the price and push it up if you need to

by RickStrauss | 11th Dec 18, 10:41am 1544478087

Disagree.

Consumer choice is a better idea, and there's no reason people who are paying by methods other than credit card need to absorb the cost of your or my credit card fees too.

by MisterB | 11th Dec 18, 6:15pm 1544505341

But paying by cash attracts cash handling fees - presume you're OK with that being added on. Paying at night time also means more lighting, so better surcharge that. Paying on a cold day may mean more heating, so better surcharge that too.

It's all running costs and as such should be factored in to all in price, not nickel and diming so you can advertise a lower rate than is actually available (im talking about YOU Air NZ)

by mfd | 11th Dec 18, 12:13pm 1544483597

Paying GST isn't optional though. Choosing to pay by credit card imposes an extra cost on the retailer for your convenience, I'd be happy to see an extra fee rather than subsidising someone else's airpoints if I pay by EFTPOS.

by Pragmatist | 11th Dec 18, 1:44pm 1544489067

Bingo. And as a customer I get the choice of paying a bit more to get those extra airpoints/status points to get me to some target (, or pressing chq instead of credit and paying with my own money now.

by Carlos67 | 11th Dec 18, 11:03am 1544479439

I think that is not strictly legit and if reported they would loose their credit card facility. I know they do it and so does one other company I know but I think you will find its not allowed.

by Sluggy | 11th Dec 18, 11:19am 1544480346

I do it. Because we are small fries in the CC game (wholesalers), we get whacked 3.2%, kinda hard to swallow when you are getting the squeeze on your margins anyway.

by RickStrauss | 11th Dec 18, 11:39am 1544481551

You can certainly understand that credit card companies would not want consumers to have transparency and choice.

by Pragmatist | 11th Dec 18, 1:57pm 1544489875

Incorrect, https://comcom.govt.nz/news-and-media/media-releases/archive/commerce-c…

Its totally legal to charge a reasonable surcharge for accepting payment by credit card.

by Mrs The Point | 11th Dec 18, 2:08pm 1544490498

Yeah, Auckland Council does it. Poor Phil is so squeezed for cash to pay bloated salaries that they need to add on 1.75%

by Lanthanide | 12th Dec 18, 12:32am 1544527939

It did not use to be allowed, but the merchants changed their rules about 4-5 years ago to allow the fee to be passed on to customers, after being put under a lot of pressure by the government I believe (basically a "do this voluntarily or you won't get a choice").

by DIYman | 11th Dec 18, 10:15am 1544476549

I recently bought a computer at PB tech and it was way cheaper than the same computer at Harvey Norman, with its flybuys, and credit card points. Points or air dollars, are worth very little compared to the cost savings at PB tech. Personally, I am in favour of letting the customer decide, a practice not seen at Harvey Norman.

this is how it works, Pak n save have to charge approx. 1% more on all their groceries, if 50% of their customers use credit cards, if everyone uses a credit card at Pak n save, then they will have to add 2% to all their prices, if a quarter use credit cards, it would be 0.5%, hope that makes sense. Now this is where the unfairness comes in, at 1% extra, the rich get that 1% back, in fact the rich get 1.33% back in points or air dollars, while the poor pay an extra 1% for their groceries and the banks take 0.67% , so in summary the banks get the highest return on us using a CC to pay for groceries, sure they might have a few bad debts to write off. On top of that they make the high interest from those who foolishly don't pay their CC off each month
Does anyone know what proportion of customers at Pak n save use a credit card? It is probably higher in some parts of the country, but on average around the country , is my 50% estimate far off the mark?

by Pragmatist | 11th Dec 18, 7:46pm 1544510789

I think you'll find that Pak'n'save etc pay far less than the average retailer for their credit card fees, pretty sure you will find they fall under one of the "Strategic Merchant" Categories, so you need to at least halve your numbers.

https://www.mastercard.co.nz/en-nz/about-mastercard/what-we-do/intercha…

by DIYman | 12th Dec 18, 11:32am 1544567527

Very interesting, I pay 2.35% merchant fees for my business with Westpac. How does the bank manage to give back 1.33% to Platinum card holders, that's what one air dollar for every 75 dollars spent equates to. they must be working on not many people using a Platinum card at Pak n save

by Pragmatist | 12th Dec 18, 11:56am 1544568972

With the Platinum cards they are also giving back some of the $150? annual fee they charge you. And they buy airpoints dollars for less than face value no doubt.. another way to keep you trapped in the Airnz eco-system.

by Carlos67 | 11th Dec 18, 11:01am 1544479269

Personal responsibility....again. Credit cards are great, had up to 3 of them at one time but now back to only using one. I get points on it and always pay it off every month. Super convenient for overseas transactions while on holiday and is linked to my PayPal account. Basically couldn't function without it now. So convenient but you just need to pay it off every month.

by KH | 11th Dec 18, 1:35pm 1544488516

I agree the banks are rapacious, especially to the stupid. But also New Zealanders need to get real about what they accept when they are being overcharged. Don't just pay what you are told to.
But I have to accept what I don't understand. many New Zealanders, even when struggling moneywise, just can't be arsed looking for an alternative way, or a cheaper way.
The banks have found they can rely on sucker consumers.

by bilbo | 11th Dec 18, 1:47pm 1544489220

Yes what we need is another probe. Another working group. Another committee.

Perhaps Labour should set up a working group to figure out why the working groups aren't, well, working?

by RickStrauss | 11th Dec 18, 5:08pm 1544501299

Sounds like you could use a probe.

by Pragmatist | 11th Dec 18, 5:24pm 1544502290

Don't give them ideas...

Oh, wait, give them ideas, just not that one.

by solardb | 11th Dec 18, 5:38pm 1544503090

Pretty hard to swallow anz's latest ad, that they will "only" charge retailers .9% to transact paywave DEBIT transactions. It costs the bank nothing to do a debit transaction , apart from investigating the possible frauds.

by John | 11th Dec 18, 9:10pm 1544515819

Debit transactions charged via PayPass incur a fee from MasterCard, only free if card swiped or dipped.

by Lanthanide | 12th Dec 18, 12:34am 1544528060

"It costs the bank nothing to do a debit transaction"

Incorrect. It uses the Mastercard / Visa payment system which costs money to run. Of course these companies make big profits, but their costs are not "nothing" like you suggest.

by solardb | 12th Dec 18, 7:37am 1544553432

It uses the paymark system,same as the millions of eftpos transactions done for free everyday. The same transaction on the same card with the same credit card company not using paywave is free.

by Tom Foolery | 12th Dec 18, 9:39am 1544560743

Other banks charge a paywave transaction at the same rate as credit card transactions. ANZ, to my knowledge, is the only bank that separates paywave transactions into credit and debit cards and charges less for the debit ones.

by MisterB | 11th Dec 18, 6:21pm 1544505711

I imagine that Credit Cards are not really as much of a gravy train as this indicates if there are elevated write offs with fraud and the prevalence of sophisticated gangs needing equally sophisticated monitoring software.

Add to this that many many credit card users pay off in full, taking advantage of interest free periods ... no interest to Mr Bank. Those who leave funds there should be on a low rate product with no frills, or perhaps a personal loan to amortize it.

by Lanthanide | 12th Dec 18, 12:36am 1544528214

So fuel, more or less a neccessity of modern life, has an investigation launched, and he thinks the next target is 'obviously' credit cards?

Not the other necessities of life for which NZers are being ripped off: groceries and electricty.

Besides, all of the banks have low-interest card offerings. If you qualify for a regular card, you'll qualify for a low-interest one. If people are so lazy, ignorant or greedy (lured by rewards points etc) that they can't sign up for a low-interest credit card even though they fail to pay off their bill each month, then really that's on them. Some element of personal responsibility is required.

Much better to investigate electricity and grocery prices, for which there is generally little alternative but to pay the prices asked, for most people in society.

by RickStrauss | 12th Dec 18, 11:42am 1544568179

When you consider that credit cards are adding 3% to the price of most of those necessities of life, having the option to pay the price exclusive of that extra 3% would be useful to a great many people.

by Pragmatist | 12th Dec 18, 11:49am 1544568590

Supermarkets, petrol station and utilities don't pay 3%. 1% max.

by Zachary Smith | 12th Dec 18, 7:29am 1544552974

The system appears to be setup so that the hard working and the virtuous and those with a modicum of intelligence can reap rich rewards. This comes at the expense of those that don't have these attributes. It results in a vicious circle and a virtuous circle. The credit card thing is a perfect example of this. The rich become richer and the poor poorer. It is really quite a conundrum that many have tried to solve and have generally failed miserably because to solve this problem is to break the rules of nature.