The Government of New Zealand has unveiled plans to cap card interchange fees in a bid to support local businesses.

The interchange fee forms a key component of merchant service fees, which bank charge from businesses when customer customers use a credit or debit card to pay for purchases.

The government plans to trim this merchant service fee to ease financial pressure on local businesses.

According to New Zealand Commerce and Consumer Affairs Minister David Clark the step may help businesses save around NZ$74m ($52.95m) annually.

Minister Clark said: “The high cost of these fees puts added financial pressure on businesses at a time when they are dealing with the economic impacts of Covid-19.

“Reducing the merchant service fees that New Zealand businesses are being charged is a priority for this government, and critical to the recovery of the economy.”

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“Currently unregulated, New Zealand’s merchant service fees are set much higher than they are in Australia and add significant overhead for retailers, who often pass those costs onto consumers through higher prices.”

The government is expected to introduce a Retail Payments Systems Bill later this year.

The bill will aim to reduce interchange fees and empower Commerce Commission to regulate the entire payment system. It will also seek to introduce disclosure and reporting requirement to enable the Commerce Commission monitor the retail payments system.

Clark added: “We will cap those for credit card transactions at 0.8%, which is in line with Australia.

“We’re also capping the interchange fees charged for online debit card transactions at 0.6%. Contactless debit card interchange fees will stay at their current levels of 0.2% or less, and for swiped and inserted debit, it will stay at 0%.”

The government aims to finalise the decisions in mid-2021. A full regulatory regime is expected to become effective next year.