New Zealand businesses pay $1 billion annually to accept card payments. The government’s ‘solution’ will save them $90 million but cost them the ability to recover the remaining $910 million. Someone’s getting a great deal here—and it’s not small businesses or consumers
The government’s recent announcement to ban credit card surcharges by May 2026, combined with the Commerce Commission’s regulation of interchange fees, represents a significant shift in New Zealand’s payment landscape. But as we examine the details, a critical question emerges: has the government targeted the right players, or are they merely treating the symptoms while the real culprits—the banks—continue to profit unchecked?
The Current State of Play
New Zealanders are paying up to $150 million annually in surcharges, with $45-65 million of this deemed excessive by regulators. Meanwhile, businesses fork out around $1 billion each year to accept Visa and Mastercard payments—costs that inevitably flow through to consumers via surcharges and higher prices.
The government’s two-pronged response involves:
- Reducing interchange fees (saving businesses approximately $90 million annually)
- Banning surcharges on in-store payments from May 2026
On the surface, this appears consumer-friendly. But dig deeper, and you’ll find a more complex picture that raises uncomfortable questions about who’s really benefiting.
The Banking Elephant in the Room
Here’s what the government’s approach doesn’t address: the fundamental power imbalance between banks and small businesses. While large retailers negotiate favorable rates with payment processors, small businesses—the backbone of New Zealand’s economy—remain price takers in a system designed to extract maximum value.
As one industry insider noted, “Both consumers and small retailers are feeling the squeeze from high bank charges. The reality is that large retailers enjoy significantly lower banking fees, while small businesses—with no power to negotiate—are left paying inflated rates.”
This hits at the heart of the problem. The government is essentially asking small businesses to absorb costs that banks have artificially inflated, rather than addressing the banks’ market dominance and pricing practices directly.
A Costly Shell Game?
Consider the practical implications for small businesses:
Before the changes: A café pays $17,000 annually in merchant fees but can recover some of this through surcharges.
After the changes: The same café saves perhaps $500-1,000 on reduced interchange fees but loses the ability to recover the remaining $16,000+ through surcharges.
The mathematics are stark. While interchange fee reductions help, they don’t come close to eliminating the underlying cost burden. Businesses will face a simple choice: absorb these costs (reducing profitability) or increase base prices (affecting all customers, not just card users).
International Comparisons Reveal Better Options
The government points to the UK and EU as examples where surcharge bans work effectively. However, these jurisdictions have more competitive banking sectors and stronger regulatory oversight of financial institutions. New Zealand’s banking sector, dominated by four major Australian-owned banks, operates in a fundamentally different competitive environment.
Australia’s approach offers a more nuanced model—their Reserve Bank is considering not just surcharge bans but also more aggressive regulation of card scheme fees and enhanced transparency requirements for payment providers. This comprehensive approach recognizes that sustainable reform requires addressing the entire payment ecosystem, not just the visible consumer-facing elements.
The Innovation Smokescreen
Banks argue that interchange fees fund innovation and security measures. Yet this argument falls flat when you consider:
- Much payment innovation occurs outside traditional banking (fintech, digital wallets)
- Security investments are operational necessities, not optional extras worthy of premium pricing
- The current fee structure penalizes innovation by making electronic payments expensive relative to cash
What Real Reform Would Look Like
Instead of putting small businesses in an impossible position, meaningful reform would:
- Direct regulatory oversight of bank pricing practices, with transparency requirements for all fees and charges
- Open banking initiatives that allow genuine competition in payment processing
- Graduated fee structures that protect small businesses from exploitative pricing
- Investment in public payment infrastructure that reduces reliance on private networks
The Opportunity Cost
Every dollar extracted through excessive payment fees is a dollar not invested in business growth, job creation, or innovation. When a small business pays $17,000 annually in payment processing fees, that’s potentially a part-time employee’s salary or investment in new equipment.
The government’s approach, while well-intentioned, essentially locks in the banks’ advantage while forcing everyone else to adapt around it.
Our Perspective
As accountants working with businesses across New Zealand, we see the daily reality of payment processing costs on our clients’ bottom lines. While we welcome any reduction in these costs, we’re concerned that the current approach fails to address the fundamental market failures that created this problem.
The banking sector’s response to interchange fee reductions has been predictable: warnings about reduced access to credit and the need to maintain “healthy” profit margins. Yet these same institutions continue to report record profits while small businesses struggle with basic operational costs.
Looking Forward
The success of these reforms will ultimately be measured not by whether surcharges disappear from checkout counters, but by whether the total cost of electronic payments decreases for businesses and consumers alike.
Early indicators suggest this may not happen. If businesses are forced to raise base prices to cover payment costs, consumers may end up paying more, not less—while banks maintain their lucrative fee structures largely intact.
The government still has time to reconsider this approach. Rather than simply banning surcharges, they could implement stronger competition measures in the banking sector, mandate transparent pricing, or develop public payment infrastructure that reduces reliance on private networks.
The Bottom Line
Credit card surcharges are annoying, but they’re a symptom, not the disease. The disease is a payment system that allows financial institutions to extract excessive rents from businesses and consumers with limited oversight or competition.
Until New Zealand grapples with this fundamental issue, we’re likely to see the costs of electronic payments simply shift from visible surcharges to invisible price increases—a shell game that benefits banks while providing little real relief for businesses or consumers.
The question isn’t whether the government got this completely wrong, but whether they had the courage to take on the real problem. Unfortunately, the answer appears to be no.
Don’t let payment processing costs blindside your business. Contact CMK Accountants today for a comprehensive review of how these regulatory changes will impact your bottom line—and strategies to minimize the damage. Call us on 06 765 6178 or email cmk@cmk.co.nz to schedule your appointment.