The surge in surcharges: why are we paying so much?

David Anstice dropped his late-model Mitsubishi ASX into his local garage for its annual service. When he returned, the bill was exactly what the garage said it would be: $939.

It was when he went to pay that he received a shock.

“If you paid by credit card, or if you used payWave, they added 2%,” he says. That would have increased his bill to $957.78. “I think that it's exorbitant.”

On that January day, the simple act of using his credit card would have cost David an additional $18.78. He decided that was too much and chose a different payment option, one that didn’t include a surcharge.

“I pushed [my card] in the slot, put in my password, and away I went,” he says.

What's going on?

Surcharges like the one David was asked to pay are being added to credit card and contactless payWave payments more often than ever before.

That's because the Retail Payment System Act 2022 set out guidelines for businesses to pass on the cost of accepting credit card and contactless payments to customers by way of a surcharge.

That surcharge should be “no more than your additional cost for accepting that particular payment method” says the Commerce Commission. Consumer NZ believes a surcharge should never exceed 2.5%.

Yet, during an informal survey of Auckland businesses, we found surcharges as high as 3%. Other businesses have made headlines for charging even more, including 3.5% for event tickets, 6% for a visit to the dentist, 6.5% for a taxi fare, and 8% for car parking.

Clearly, people aren't happy about it. Consumer received more than 125 complaints about surcharges in 2023 and has been campaigning relentlessly on the issue.

“As shoppers, we have no way of telling what businesses are getting charged so it's difficult to tell if we're being ripped off,” Consumer NZ campaigns manager Jessica Walker says.

The Commerce Commission received even more complaints, investigating 199 of them last year. It is, it says, in the “engagement and educative phase” of its own campaign, contacting bigger companies to discuss how much they should be charging and encouraging them to lower their fees.

It has spoken to 12 organisations so far, including local councils, ticket agencies, and companies that regularly process online payments or charge large surcharges. "We recognise surcharging is an irritant for many and we are prioritising where we think the most savings for consumers can be had," a spokesperson told Consumer.

Yet surcharges can be added to your bill almost anywhere you use payWave or your credit card: getting an ice cream at the dairy, going to your local pool, seeing the doctor, or, as David found, at his mechanic. Over a year, those surcharges can add up. For this writer, a back-of-the-envelope estimate based on a year’s worth of credit card purchases came to $300 to $400, just for the surcharge fees.

Surcharges annoy David, who manages a community law firm, because he refuses to charge his own customers those fees. Instead, he tells them to pay by eftpos. "If you're going into a cafe and buying a meat pie for $3.50 it doesn't make much difference. But in some places, it does,” he says.

Consumer wanted to find out why we’re paying those surcharges. We wanted to know if there are benefits to using payWave or a credit card, or whether we should go back to punching in our pin every time we pay. We also wanted to find out if there were ways to use credit card reward schemes to offset those pesky surcharges.

To do that, we had to track down the experts.

Why are we paying surcharges in the first place?

This is probably the easiest question to answer for Claire Matthews, an associate professor at Massey Business School, and she laughs when I ask it.

She tells me retailers have always had to cover the charges associated with credit card use. Before the Retail Payment System Act came into force, retailers set their own surcharge fees, or paid the charges themselves and absorbed them into their business costs.

Now, they’re simply passing those costs on to customers.

"What the surcharge does is that it says, ‘If you're going to use your credit card for whatever reason, because it's more convenient, you haven't got access to the cash, whatever, you're going to pay for the cost to us of doing that’,” she says.

Businesses pass on credit card surcharges so they don't have to raise prices across the board. Matthews says increased prices would disadvantage customers who have cash or money in their account to pay.

It is, she says, a convenience fee. “It's a way for people to make a payment without cash,” she says. “A credit card transaction is guaranteed. If the customer doesn't have enough money, that's the bank's problem to sort out. It's not the retailer's problem to sort out. So, there's all that stuff that the banks do.”

Consumers also potentially face surcharges for using payWave – the convenient ability to wave your credit or debit card, phone or watch, near an eftpos terminal to quickly pay for goods or services.

Why? “A payWave payment goes through the credit card payment channels so incurs the costs associated with that channel,” says Matthews.

Cash, eftpos and credit cards are often the only point-of-sale payment options available in Aotearoa. On top of investigating complaints about excessive surcharges, the Commerce Commission is also campaigning for more innovation in this area.

It says New Zealand lags behind other countries, where bank transfers, apps and QR code payment systems are available at the till. Increased competition, it says, could help reduce or eliminate surcharges.

“For smaller businesses who are subject to higher fees to accept card-based payments this is particularly appealing,” a Commission spokesperson says. “It means they could enjoy lower payment costs and reduce – or even remove – the need to surcharge to recoup fees – a win-win for both them and their customers.”

What do credit card rewards schemes offer?

Reward schemes provide another potential way to offset a portion of credit card surcharges.

Matthews does this herself, using two credit cards to access two different rewards schemes. “I have one with BNZ [and] I get Flybuys. The Westpac one I get Hotpoints.”

This, she says, is a way consumers can claim back some of the cost of having a credit card.

“The benefit of paying by credit card versus a debit card is, OK, you're paying a surcharge, but effectively, what you're paying for are the reward schemes that go with the credit card, because the bank charges being recovered by the surcharge are part of how the banks raise the money to fund the rewards.

“However, the reward schemes are unlikely to fully offset the surcharges and other costs of using credit cards.”

So, should you sign up to a reward scheme? In Consumer’s view, they often don’t offer value for money once fees, interest rates and surcharges are factored in. Some people can make it work, but it requires a high level of annual spending using your credit card.

Consumer estimates $25,000 over 2 years is the level of spending that can make a credit card rewards scheme – and paying the associated surcharges – worthwhile.

Consumer spoke to one Kiwibank customer who’d managed to make the system work for him. A frequent flyer, his AirPoints Platinum Visa gives him discounted Koru club membership, bonus AirPoints and free insurance when he travels. It comes with a $180 annual fee.

At well over six-foot, he uses the AirPoints he accumulates to upgrade his seats and get more legroom. In doing so, he believes he’s getting more than enough benefits from his rewards scheme – surcharges be damned.

Do surcharges affect consumer behaviour?

My envelope tally revealed I could easily be paying $300 to $400 a year in surcharge fees. That’s a significant amount when we’re battling a cost-of-living crisis.

There is, of course, an easy way to avoid that cost – stop using your credit card.

So, is that what’s happening?

We approached every major bank in Aotearoa asking for data about credit card and eftpos usage over the past year. They all said they couldn’t tell us.

“We don’t collect that type of information,” a spokesperson from ANZ said. BNZ suggested we contact Worldline, the global payment and transaction service, but it didn’t respond to our request for comment.

So, we went to Visa. In a written statement, country manager for Visa New Zealand and South Pacific, Anthony Watson, told us Visa did not support surcharge fees being passed on to customers. “We believe surcharging, especially excessive surcharging, has a negative impact and that the simplest, most economically efficient and consumer-friendly approach is for merchants not to impose surcharges on consumers for using their preferred method of payment.”

Visa couldn’t say whether credit card usage had declined over the past year either. A spokesperson said, “Because cardholder accounts are managed by the banks, they’d be best placed to answer your questions about the usage trends they are seeing among their cardholders.”

Instead, we asked around. Two Auckland-based credit card users, who asked not to be named, told us surcharges had definitely affected how often they used their credit cards. While both kept cards for emergencies, both had stopped using them for everyday payments. “I never use it,” one said. “I swipe my eftpos card, and plug in my PIN code instead.”

The benefits of using your pin

Using your pin is slower and can hold up other customers in the queue. But having a little extra time to consider what you’re purchasing can be a good thing, says Sorted’s personal financial lead, Tom Hartmann.

“If you're trying to manage your money and consider your choices, a little bit of friction helps,” he says. Recently, he experienced this himself when payWave stopped working on his card. “Every time I key in that PIN … [I’m] a little bit more conscious of what I’m spending my money on.”

Getting rid of your cards and reverting to cash is an extreme move in a world that’s growing more digital by the day. Hartmann isn’t suggesting we go back to carrying wads of notes. “When we're paying with phones and watches it's hard to do this,” he says.

But swiping or inserting your card, then keying in your pin, feels more tactile than simply waving it and walking away. With payWave, “We don't feel the pain of letting go of money in order to get whatever it is we're getting. It’s all pleasure. Your brain is working differently. So that’s not a fair trade off.”

In short, reverting to pin punching has two benefits: it makes you think about your purchases more deeply and, at least for debit cards, avoids those pesky surcharges.

Hartmann agrees they’re annoying. He advises people to avoid them at all cost. “It's essentially a drag on your finances,” he says. “You're being nickelled and dimed to death, little by little. All these little additions really add up and they keep you from getting ahead.”

A few days after our chat, Hartmann’s words swirled around my head as I arrived for an appointment with my dentist. After receiving a filling, I did something unusual for me: I asked the receptionist if there would be a surcharge to pay by credit card for my appointment.

She shook her head. “I think we probably charge you enough already,” she replied. For the first time in a long time, I waved my credit card over the machine. And I walked out of the dentist smiling.

Sizing up the costs

Payment methods that may incur a surcharge

• Using your credit card.
• Using payWave with your credit card.
• Using payWave with your debit card.
• Making online payments with some merchants

Payment methods that should not incur a surcharge

• Swiping your eftpos card and using your pin
• Swiping or inserting your debit card and using your pin
• Using cash