Six weeks to do the maths: will you pass on credit card charges?

April sees the introduction of a policy change for credit card fees: where formerly it was part of your agreement with your bank not to pass on credit card charges to the consumer, this will now change.

So the dilemma is: to pass on the fees as an added charge to your credit card customer? Or not?

Some background
The change came about as a result of an eleventh hour settlement as our Commerce Commission was about take credit card companies Visa and Mastercard to court last year regarding price-fixing and to force them into greater disclosure. The agreement with the banks should significantly reduce average interchange fees charged on New Zealand credit card transactions and ensure the fees are transparent and open to competitive forces in the future, said the Commerce Commission.

Typically banks and card companies charge an interchange fee, in New Zealand around just under one percent of purchase cost. That was about twice the price charged in Australia and other parts of the world, but some retailers reported often paying double that.

A New Zealand Herald editorial said that retailers have been delivering business to the credit card companies and been charged $500 million a year for the privilege. (The editorial goes on to point out that this was while charging consumers around 18 percent in interest: way ahead of the Official Cash Rate, a determinant of retail interest charges, which has dropped from 8.25 per cent to 2.5 percent over the past two years.)

Cash shoppers have been subsidising credit card users because the hidden card charges have inevitably been passed on to all customers.

Now the dilemma facing store owners is: should they pass on the credit card fee to customers using those cards, therefore making the credit card purchase more expensive that the cash one. This will no doubt incur the wrath of credit card users.

But will retailers have the nerve to do this? The consumer has been used to using a credit card without penalty for a long time. Retailers may not want to turn sales in these tight times. On the other hand, stroppy cash paying customers may ask for discounts if they find retailers not passing on fees to credit card customers.

It is a potential minefield, but it is impossible to make decisions without facts, and while we know retailers will have the right to pass on charges, no one knows yet what the proposed fees will be. Banks have yet to announce their charges.

However, The Read will be doing some fact-finding over the next few weeks to help you make informed decisions on whether to absorb or to pass on charges.

Helpful Hint: We suggest you find out what other retailers around you are doing – one suburban bookseller has noted that neither the local butcher nor the cafe now accept credit cards, only Eftpos.

Next week:
How interchange fees work and what effects the proposed unbundling and unblended service fees for credit card transactions may have on your business.