Credit cards costing small businesses $100 a week
Shoppers are used to getting mad at big corporations that charge eye-watering credit card fees.
Airlines, ticket sellers, taxi companies and parking buildings have few qualms about slapping buyers with a $2, $5 $10 or even $20 fee on top of their original purchase.
But little businesses are struggling with credit card fees they do not feel they can pass on to shoppers, fuelled by the rise of tap and go payments, say retail and business advocates.
"It's interesting because all the big companies pass on credit card charges on so it's surprising that small companies can sustain not passing it on," says software company Xero's managing director Victoria Crone.
"It's a far more intimate (customer) relationship than a big company so they are far more cautious."
The issue is heating up because shoppers have embraced handy tap and go payment cards, which pay for purchases under $80 with a single tap and now account for millions of payments a month.
Business advocates say the system is pushing money into the credit card network at the expense of cheaper eftpos processing, which will end up costing shoppers money when small outfits can no longer absorb the cost.
The Commerce Commission raised fears of a payment monopoly driving up prices for consumers in its 2014 Consumer Issues report, released to Stuff under the Official Information Act.
"PayWave and PayPass have been touted as the latest and greatest advancement in retail technology ... (but) already we are seeing signs that NFC transaction systems are replacing the current eftpos payment system with its lower fee structure. This could result in a transaction fee structure monopoly and increased charges to consumers as traders pass on their increased transaction costs through surcharges or increased prices," it said.
Crone says more small businesses are fighting back by leaving the tap and go function switched off on their payment terminals to avoid forking out the extra fees.
That's not very convenient for shoppers, however. Crone argues a better way would be to beef up the eftpos system with added convenience to let the old system compete.
New Zealand was an early adopter of eftpos and it has served us well. But debit cards are replacing eftpos cards because they offer convenient contactless and internet payment options, which eftpos cards do not, says the Retailers Association.
Retailers say PayWave is displacing eftpos transactions because when people use contactless debit cards the payments are processed through the credit card network, even though they are spending their own money from their bank account.
This costs retailers extra, because while eftpos charges a fixed six monthly fee, credit cards charge a percentage margin, meaning every small transaction costs.
Paying per swipe "is cool if you're selling high value goods. But contactless is targeted at low value goods," says Crone.
In 2009 the Commerce Commission settled a case with banks and credit card companies over the way they charge for credit cards, and for the first time gave shops the right to add a margin to pass on the cost of credit card payments. The Commission said banning shops from adding a surcharge was "shielding cardholders from paying the cost of their payment choice."
The settlement was designed to cut credit card fees paid by retailers but a review in 2013 found that, while some retailers were paying lower fees, many were actually paying more.
Those who were paying less were more likely to be big retailers.
Despite this, a 2012 survey of 3500 retailers found only about 15 per cent refused to take Visa and Mastercard and fewer than one in 10 surcharged for credit cards. The survey has not been repeated, despite the Commerce Commission noting in 2013 that credit card margins looked set to rise again.
Crone says she has personally noticed more small businesses refusing to switch on their terminal's tap and go function, as well as some refusing credit cards altogether or adding a margin to credit card purchases. She is surprised more small business are not passing on the costs.
She estimates a small business turning over $20,000 a month could be paying $100 a week in credit card transaction fees if it is charged a 2 per cent margin.
"This is likely around 10 times the cost of the eftpos unit and likely around the same cost as their full telecommunications spend," she says.
Xero and the Retailers Association want an eftpos revival: more investment in the eftpos network to inject more convenience so it can compete with credit and debit payments. Crone says it is crucial to hang on to eftpos because it benefits both businesses and consumers.
"We need to encourage an easy eftpos alternative because ... eventually the extra costs that are being incurred via countless cards will be passed on."
Banks are already developing instant mobile phone payment methods that let people pay immediately for small purchases from their bank accounts.
"You want something you can use to pay for your coffee," says Crone.
In the meantime, don't be angry if you try to tap and go but find that the helpful function has been disabled.
The shop may be trying to make your coffee cheaper.