Visa and MasterCard are contending with
the attention of regulators in New Zealand, following civil
proceedings against the schemes and 11 banks instigated by the New
Zealand Commerce Commission two years ago, which alleged
price-fixing of interchange in 2004. In New Zealand, the credit
card interchange fee is 1.8 percent.

Following settlements agreed with the
Commission, and announced in mid to late August, Visa and
MasterCard will adjust their interchange rules in the country,
allowing individual issuers to set their own interchange fees up to
an agreed maximum and will also open the scheme to non-bank
acquirers. Merchants will also be allowed to apply surcharges to
credit card transactions and encourage customers to pay by other
means. Visa and MasterCard will also pay NZ$2.6 million ($1.7
million) and NZ$3 million respectively to cover the Commission’s
costs in bringing the case.

Visa and MasterCard capitulated in the face of
stringent financial penalties they could have incurred had they not
settled the case. The New Zealand Commerce Act provides for
penalties for price-fixing of up to the higher of NZ$10 million per
breach, or either three times the commercial gain resulting from
the breach, or 10 percent of a company’s turnover.

However, the schemes’ decision to settle the
case without admitting liability or wrongdoing could be something
of a gamble, as regulators elsewhere in the world, most notably in
the US, are currently being urged to overhaul interchange, on top
of card-related reforms that govern interest rates and late payment

Additionally, now that merchants will be able
to surcharge on credit card transactions, it is likely that debit
payment and cash usage could rise at the expense of credit cards.
Credit card billings in the country continue to grow year on year,
but the rate of growth is slowing markedly.

Australian regulators refuse to step

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New Zealand’s regulators look to be
taking their cues from the Reserve Bank of Australia (RBA), which
has established itself as a determined foe of the payment networks
over the issue of interchange. The RBA moved in 2003 to reduce
interchange levels and subsequently kept up pressure on the
payments industry to reform itself and open up the market to
competition, or run the risk of the RBA stepping in to regulate the
industry further.

A review of the RBA’s reforms in September
2008 included a warning that unless industry players had made
“sufficient progress” by August 2009 in strengthening the domestic
EFTPOS system to compete more effectively with the international
payment schemes and developing an alternative system for online
payments, and undertaking that interchange would not rise above
their current levels, the RBA would be prepared to regulate
interchange further.

Now that deadline has passed, and the RBA has
concluded that despite the establishment of EFTPOS Payments
Australia and a commitment to develop the MAMBO online payments
project, “the RBA does not believe that these initiatives have yet
reached the point where they will exert significant competitive
pressure on interchange fees.”

As a result, the RBA is proposing that the
benchmark for credit card interchange be reduced to 0.3

However, in acknowledging the progress made so
far, the RBA says it will defer consideration of any further
reduction in interchange fees, although it will review its stance
in light of further industry developments. In the meantime, the RBA
is examining differences in regulation of the scheme debit and
EFTPOS systems which “may be detrimental to competition.”

The RBA is now undergoing a consultation
period on the possibility of changing interchange regulation on the
EFTPOS system to be consistent with scheme debit.

new yealand