The cost of contactless payments should not be an obstacle to the uptake of this popular way to pay, provided that all banks start charging appropriate fees for these transactions, says the managing director of payment terminal provider Skyzer Technologies.
Darren Parker says that banks often charge merchants unnecessarily high fees for contactless payments – sometimes more than 5%.
After more than ten years in the New Zealand market as supplier of Eftpos payment solutions such as Ingenico payment terminals, he says Skyzer knows the local payments industry through and through.
“Either through technological limitations or a lack of desire to get the charges right, banks have been slow to rectify this unacceptable situation. This has definitely limited the uptake of contactless payments by merchants compared to other countries.”
Despite resistance from some merchants, contactless payments are proving popular with consumers. Currently in New Zealand about 7 out of 10 card present transactions are contactless.
Still, this significantly lags behind Canada, for instance. Figures released last year by Moneris, that country’s largest processor of debit and credit card payments, revealed that nearly half of all Eftpos transactions in Canada were already contactless. And the number is growing.
“Consumers like the convenience and speed of contactless payments. Also, it offers then the added security that the card never leaves their hands,” says Parker. There has also been a significant adoption in New Zealand, Australia and other countries of Apple Pay and Google Pay, which means that consumers will increasingly want to tap their phones to pay.
“Merchants are under pressure from their customers to offer contactless payment, not to mention the commercial benefits of this fast payment system. Think about it, if you ran a café, would you rather have people waiting to pay, or enjoying the ambience while you prepared their order?”
Many New Zealand merchants, even a notable chain such as Burger King, choose not to offer their customers contactless payments, citing cost as the reason.
“When a consumer inserts or swipes their card, banks charge a fee if it’s a credit card, but debit card transactions are free. However, when the payment is contactless, most banks in New Zealand apply the credit card fee to debit transactions too,” says Parker.
“Even though the actual cost for a contactless debit transaction is lower than the credit card cost, most banks don’t pass this saving on to merchants. They simply make no distinction between contactless debit and credit card transactions. To my mind, this situation needs to be rectified as soon as possible.”
Typical bank transaction fees
The fees banks charge merchants for transactions are largely based on the interchange fees that apply between banks, rather than on the fees they pay the credit card companies, says Parker.
Interchange fees are the amounts they charge each other for processing payments made with cards from another bank. If the merchant uses ANZ, for instance, and the payment is made with a Westpac card, ANZ pays Westpac an interchange fee. These fees vary based on the specific card used to make the payment.
Some merchants pay unbundled transaction fees, known as interchange plus, where the fee consists of the actual interchange fee for each particular card, plus an agreed percentage. This is a facility banks have traditionally only offered to larger merchants such as supermarket chains.
Most small to medium businesses pay bundled transactions fees, in other words a set percentage for each transaction, regardless of the actual card used.
“The bundled fees can be as low as a little more than one percent, but I have seen cases where merchants paid more than five percent,” says Parker. “It’s these bundled fees that should be lower for debit card transactions.”
The good news is that some of the major banks have already begun to address the situation by introducing technology that can differentiate between contactless debit and credit transactions.
“Merchants would be well advised to ask their bank about the possibility of paying lower transaction fees on contactless debit transactions. Once banks start charging lower fees for these transactions, we expect more merchants to start offering their customers the convenience of contactless payments,” says Parker.
“Having contactless payment terminals such as the Ingenico terminals will allow merchants to accept mobile payments too, as well as other e-payment methods that could be introduced in future.”