Card surcharges

Little, it seems, offends the consumer more than a charge being imposed where one did not appear to exist before.

In the normal course of events, a fuel company tacking an extra 90c on the price of a tank of petrol would barely raise an eyebrow.

But five Wellington BP service stations have upset consumers by charging those of their customers who use credit cards a surcharge of up to 90c per transaction.

The service stations' employees have been abused since the practice was first revealed, and the hunt is on for other businesses that have followed the service stations' lead.

Florists, taxi firms and even the Police have owned up.

One newspaper baldly reported the surcharge would cost credit card users $340 million a year and the impression has been given that it is nothing more than a ploy by big business to extract a little more flesh from the hide of the humble consumer.

But a more careful examination of the background to the surcharge, and the Commerce Commission's efforts in bringing it about, should produce greater acceptance of a move with prospects more likely to benefit consumers than harm them.

The commission's stated role is to ensure competition exists among those offering goods and services.

Last year, it went to the High Court and obtained settlements with seven financial institutions over what it claimed were breaches of the Commerce Act.

These, it said, consisted of the institutions "agreeing and implementing" the Visa and MasterCard "credit card scheme rules" in New Zealand that provided for the payment of "multilateral interchange fees".

It alleged these rules "substantially lessened competition by artificially inflating the cost to retailers of accepting credit cards and ultimately raising prices paid by all consumers".

The commission got the settlement it wanted, bringing to an end an anti-competitive arrangement, and now, as the surcharge is given effect by some retailers, signs of greater transparency and greater fairness are beginning to show.

Where retailers have made the change, only those consumers who use credit cards will pay the surcharge.

And when they do, they will know exactly how much they are being charged to have their money transferred from their credit card account to the bank account of the retailer.

The charge will no longer be an unknown figure hidden within the retail price of a product or service.

As well, those who use cash-cards or cash for their purchases will no longer be forced to subsidise credit card users.

The surcharge is expected to lead to a drop in the use of credit cards and Retailers Association chief executive John Albertson has pointed out the obvious: financial institutions and credit card companies do not like it.

That seems hardly surprising and it is also hard to imagine consumers being sympathetic with the banks.

However, as we contemplate a possible return to carrying cash in our wallets and purses to avoid paying the credit card surcharge, there are those who make a very valid point about what is now an old-fashioned means of payment.

Executive vice-president of Visa Europe Steve Perry, reported in Britain's Daily Telegraph newspaper, suggests that for the economy as a whole, using cash is an expensive way of making payments.

The total cost to society of making payments by cash, cheques and cards equates to 2%-3% of GDP, and handling cash accounts for two-thirds of the cost, he estimates.

As well, for a retailer, handling cash costs as much as the transaction fee on a credit card.

He argues cards are less risky than cash, more efficient and better value.

While he does not predict the complete demise of cash, he predicts the rise of payment by cell phone or by "contactless" cards, where customers merely wave their card at a machine to have the price of their petrol or newspaper instantly deducted from their bank account.

Such innovations from credit card companies will be welcomed for their convenience and efficiency, but whatever innovations the future might bring to make spending more convenient for consumers, there will always be a need for good old-fashioned honesty about what convenience costs.

That transparency has been missing here for as long as we have had credit cards, and retailers, in the best interests of their customers, should embrace the surcharge.

Having a system that shows every use of the credit card comes at a cost, and the fact the cost can be avoided by paying in cash or by cash-card has given consumers just a little more power over their money.

It is reassuring to know there is one government agency willing to go to court for consumers and bring an end to cosy little arrangements like the "Visa and MasterCard credit card scheme rules".

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