Clark David; Rurawhe AdrianRETAIL PAYMENT SYSTEM BILLFirst ReadingHon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): I present a legislative statement on the Retail Payment System Bill. ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website. Hon Dr DAVID CLARK: I move That the Retail Payment System Bill be now read a first time. I nominate the Economic Development Science and Innovation Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 3 March 2022. The Retail Payment System Bill introduces a new regime to ensure that the retail payment system—that is the way we pay for goods and services—delivers long-term benefits to consumers and to small businesses or merchants. It does this in three ways. Firstly it enables the Commerce Commission to regulate participants in designated retail payment networks. Secondly to reduce merchant service fees sooner rather than later it sets an initial pricing standard for the MasterCard and Visa credit and debit networks and that standard targets interchange fees which are the larger part of merchant service fees making it less costly for retailers when accepting payments. Thirdly it enables the Commerce Commission to issue merchant surcharging standards to limit excessive surcharging and the bill enables the commission to monitor investigate and enforce the rules. This bill fulfils a Government commitment—indeed a Labour manifesto promise—to regulate merchant service fees charged to retailers and bring them in line with the other comparable economies that we look to. COVID-19 has changed the way we spend our money. We spend more and more time online transacting with contactless transactions as well. There is growing pressure for all retailers including the local dairy to accept the available technologies but they do come with an added cost. Reducing these fees is a priority for this Government and is critical to the recovery of the economy from the impacts of COVID-19. So in December 2020 I began looking at the merchant service fees regime and the broader retail payment system and the findings of the research generated by officials as we looked broadly showed that the system could indeed benefit from regulation. The first finding was that the costs merchants are charged to accept some payments are indeed high. Evidence shows that in many respects some of our payments are parallel to what happens in Australia but they're actually about twice as high for credit card payments and for online debit transactions. The second finding was that there are barriers to competition in the current regime. Retailers want to accept payment types that are widely used by consumers and vice versa and that means a few large banks and card schemes dominate the retail payment system making it difficult for new entrants to offer fresh payment options. A third finding was that merchant service fee pricing has particularly adverse impacts on small businesses. In part this is due to their smaller scale and their limited ability to negotiate good terms but also they're at greater risk of losing customers if they decide to surcharge or to steer customers away from certain payment methods. For many small businesses they are simply forced to accept payment methods and then absorb the costs. It's a cost of doing business for them. Lastly consumers like to use higher-cost payment methods. Indeed we know credit card loyalty schemes are popular. They earn rewards for those that can participate in them and banks encourage this because they in turn get higher returns as well. But that creates an equity issue because someone has to pay for those rewards. Every consumer gets charged the same price for an item typically in a store but some get rewards back and that tends to be the wealthy who can afford and are offered those higher reward schemes. So effectively that amounts to a transfer of wealth from poorer folk to wealthier folk as a part of those loyalty schemes. So the Retail Payment System Bill helps to alleviate some of these pressures consumers and small businesses are facing as a consequence. I'd like now to go into further detail about the proposed regulation of designated payment networks. The bill allows the Commerce Commission to make recommendations to the Minister of Commerce and Consumer Affairs as to which retail payment networks should be designated. The Minister then of course makes a decision and it futureproofs the regime by allowing it to respond to any changes in the system that come up along the way such as new payment methods that may emerge. Once a network has been designated and a Minister has accepted that advice and designated a network the commission will have a broad set of tools to regulate aspects of the network. For example the bill seeks to address the lack of competition by enabling the commission to issue access standards. They could require established participants to open up access to parts of the network to make it easier for new entrants to use crucial infrastructure as a part of the payment system. The commission could also issue directions to network operators to set or amend network rules and the bill enables the commission to monitor the retail payment system and impose information disclosure requirements if it wishes. It can also improve the transparency of fees through describing how fees may be presented and that will all make it easier for small businesses to compare the different offerings in the market the different merchant service fees they might be charged for using this network system or that system. In addition the bill directly addresses the problem of high merchant service fees by enabling the commission to regulate pricing through network standards. Now the network standards could cover pricing principles and limits on fees as well as pricing methodologies and how prices are expressed. Small businesses then will have greater transparency greater clarity about how the different systems compare and as I've said they can choose to use the ones that suit them best and that will put overall downward pressure on fees that are charged to merchants. The second key aspect of the bill is that MasterCard and Visa credit and debit card networks have been designated off the bat for an initial pricing standard. Now that makes sure that we get to one of the challenging issues that's in the system straight off the bat and we're doing that by regulating the interchange fees that they can charge which are a big part of merchant service fees. So that will be something that immediately it comes into effect people will see the change. There are also some anti-avoidance provisions that are coming into play. So this is to avoid something known overseas as the waterbed effect where you regulate one part of the merchant service fee like the interchange fee and see fees for other parts of the merchant service fee go up to compensate the issuers. So we're alive to that and that standard is there to ensure that that waterbed effect doesn't happen here in New Zealand. I want to see merchants benefit from lower fees as soon as possible and I want to see them pass on those savings to consumers in New Zealand. Both small businesses and consumers will be better off as a result of these changes. Now the initial measures target card products issued by MasterCard and Visa because they cover the lion's share of the market for retail payments. With the other schemes present in the market some of them don't have interchange fees—they have different models—but we think that this will make a significant difference. That initial pricing standard will commence six months after the initial enactment of this bill and that allows regulated parties sufficient time to ensure that they do comply with the new standards. Those standards are meant to be an initial and interim measure while the Commerce Commission gets up and running and then it will be able to adjust—Hon Todd McClay: What do you mean if it gets up and running? Hon Dr DAVID CLARK: —the pricing standards as needed—in this particular regime sir. There are finally limits on merchants' surcharging that I'd like to mention. Sometimes retailers use surcharges to recover the costs of merchant service fees but where they charge more than the actual cost that can cause a harm to consumers. So if the true costs are not being passed on the commission can issue standards to ensure that surcharging is not excessive. Hon Todd McClay: There's not a problem that a good standard won't fix. Hon Dr DAVID CLARK: Those standards could include information disclosure and record-keeping requirements and may also set out how merchants must represent surcharges. That's a very similar approach to that taken in Australia and I'm sure Mr McClay will have something to say about that. To conclude retail payments are central to the economy. Consumers continue to demand that more innovative payment methods are available to them but we know that the fees being charged are indeed too high. This bill ensures that consumers are supported. As we're in difficult COVID times consumers are supported small businesses will be supported and they will help with the economic recovery. It's an important step in the right direction to ensure that our retail payment system delivers long-term benefits to consumers and businesses in New Zealand. I commend this bill to the House. DEPUTY SPEAKER: The question is that the motion be agreed to.