On 13 May 2022 the Retail Payment System Act 2022 (which was introduced towards the end of last year) received the royal assent. Most of the Act came into force the next day.
The Act introduces a new regulatory regime for the retail payment system. The stated purpose of the Act is to benefit New Zealand merchants and consumers by promoting efficiency and competition in the retail payment system. Key concerns driving this legislation included high merchant service fees, lack of competition in the market and customers being incentivised to use high-cost payment methods.
The retail payment system is the technology infrastructure that facilitates the transfer of funds from consumers to merchants in exchange for goods and services. It enables a variety of payment methods, such as debit and credit cards, bank transfers, and digital wallets.
To address these concerns, the Act sets out a framework to enable regulation to occur in relation to the retail payment system. If an issue is identified in relation to a particular retail payment network, an Order in Council can be issued designating that retail payment network as being subject to the Act. This enables the regulator (and the Commerce Commission has been given this role) to set network standards and issue directions in relation to the rules of the network. Under the Act, such network standards and directions must be complied with by the designated retail payment network and its participants.
Network standards will be able to cover a range of matters such as limits on fees for payment services, requirements for participants to disclose information, and access rules. Directions can require the setting or amending of rules of the network.
Schedule 1 to the Act categorises the Visa and Mastercard networks as designated networks. No other networks have been designated by the Act, meaning the Act will not apply to any retail payment network other than the Visa and Mastercard networks unless and until they are designated by an Order in Council. In relation to the Visa and Mastercard networks, Schedule 1 to the Act also includes an initial network pricing standard. This pricing standard, which comes into effect on 13 November 2022, sets a limit on the ‘interchange fees’ on these networks.
The Act also gives the Commission the power to issue merchant surcharging standards. The standards can require merchants to disclose information, limit surcharge amounts and require certain records related to the surcharge to be kept. Merchant surcharging standards do not require retail payment networks to have been designated and can be issued in relation to networks generally or in relation to a particular network or situation.
The Commission will be able to utilise similar enforcement powers as those set out in the Commerce Act 1986. This includes monitoring and investigative powers. Pecuniary penalties will be able to be imposed by a Court for failing to comply with a network standard, network directions and merchant surcharging standard. The maximum penalty is up to $5m for network participants failing to comply with a network pricing standard. Information on the Commission’s priorities in relation to the Act can be found here.
Network operators should assess their retail payment networks against the key concerns to help assess their potential risk of being regulated.
If you are interested in how this legislation may affect you, please contact us.