The Government was warned by officials that a card payment surcharge ban could push up prices and put pressure on small businesses.
The Government plans to ban surcharges on card payments for in-person payments.
Legislation is expected to be introduced to Parliament by the end of the year, with the ban to kick into effect no later than May 2026.
But advice released to RNZ under the Official Information Act shows Ministry of Business, Innovation and Employment officials warned there could be problems with the ban.
They also recommended the ban be limited to only in-person debit card payments, not credit cards.
Ministry officials said they were not aware of any other jurisdiction that had banned surcharges across all payment methods.
The Commerce Commission has estimated that 30% of merchants apply a surcharge, for a combined $150 million a year.
Officials said surcharging could be efficient, particularly if it steered consumers to use lower-cost payments methods such as eftpos, or put pressure on payment schemes to lower their fees.
The Commerce Commission is bringing in new rules for interchange fees, which are expected to reduce what merchants must pay.
"Surcharging also ensures that users of no cost payment methods are not cross-subsiding users of higher-cost payment methods through paying higher prices for goods and services," the Ministry of Business, Innovation and Employment said.
It noted in a briefing that Visa and Mastercard had campaigned for a ban on surcharging, and it was likely to mean more demand for card payments on their networks.
The key potential drawbacks outlined in a briefing at the end of May were weakened price signals between payment methods, because there would no longer be a way to encourage people to use cheaper payment options.
"This could increase these merchants' total payment costs of the same volume of sales."
Chief executive Carolyn Young said these payments were a contentious and complex area for retail businesses. (Source: Breakfast)
Prices could go up if shops that had previously surcharged had to cover the costs.
"Consumers of these goods or services that use lower-cost payment methods would be partially cross-subsidising those that use higher-cost payment methods."
There could be more pressure on small businesses who were less able than larger shops to absorb the cost.
They said Visa and Mastercard could also have their market power entrenched. The surcharge ban could "accelerate the decline of eftpos", they said.
It could also discourage people from switching to new digital payment technology.
They said the competition impact assessment found it challenging to identify the marginal impacts of a surcharge ban.
"So much of the competition impacts are a function of the interchange fee caps that are already in place and subject to review by the commission… the effects of a ban will be concentrated and mainly fall on smaller business merchants in competitive, low-margin sectors."
But hidden fees would be removed, excessive surcharges would be addressed, there would be lower compliance costs and it would be easier to enforce the rules, they said.
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