Covid-19 has been a tipping point for many retailers previously undecided on the value of contactless payments.
Almost overnight, contactless went from a nice-to-have to being a necessity as customers became aware that touching cash and point-of-sale keypads was a potential source of infection.
In January and February 2020, an average of 350 ANZ customer retail sites added contactless payment capability each month. In March, when the first covid-19 cases were detected in New Zealand, that jumped to 1,112 and in April, 2,235. In the first four days of May nearly double the number of retailers signed up for contactless than in the whole of January or February.
Before covid-19, the split of ANZ merchant-processed debit transactions in a card present (face to face) environment between contactless and eftpos was 20 percent contactless and 80 percent eftpos. Today, the split is 30/70.
Led by ANZ, all major banks introduced fee waivers for a limited time for their existing customers and, weeks later, the industry raised the PIN limit from $80 to $200. These moves were welcomed but a bigger shift away from shared surfaces at payment terminals was gaining momentum.
New Zealand has relatively low contactless use by retailers – around 29 percent, compared to 70 percent globally, according to a Mastercard survey. In Australia and Britain, two markets New Zealand is often compared to, contactless adoption is around 90 percent.
Part of the reason for low contactless use in New Zealand is eftpos, the grand-daddy of all Kiwi card payment schemes, that enables card payments to be made free to the retailer (apart from the cost of terminals and connections) and customer. Eftpos is simple, unique and well established — but it doesn’t have a contactless option.
Because it incurs no fee, eftpos significantly lowers the average cost to merchants of point-of-sale payments in New Zealand and distorts any price comparisons with other markets.
Some retailers in New Zealand have cited the merchant service fee for contactless as being expensive, but they are comparing them to markets without a free payments option.
There are a couple of points that aren’t well understood about contactless when it comes to pricing.
Each contactless transaction is made possible by a range of third-party providers (see What makes up Merchant Service Fees, below) and banks are charged for those services.
There is also no one approach to pricing. ANZ, for example, offers a range of pricing options depending on the size of the business and the number of transactions. It also offers businesses separate contactless debit pricing – rather than bundling with credit card processing – to provide pricing transparency and enable merchants to benefit from this lower cost.
But the merchants’ point is taken: As contactless evolves and becomes more widespread, it needs to get cheaper — and it will.
From August 1, ANZ will be introducing a new maximum contactless debit rate of 0.7 percent for ANZ banked businesses, down from 0.95 percent.
Based on the current volume and forecast across our customer base, this will lower our overall average contactless debit rate across our merchants to 0.43 percent.
This new pricing will be comparable to Australia which has five times New Zealand’s population and is a global leader in contactless payments.
Further changes are likely. We can expect to see new pricing plans that position contactless as an affordable business tool, greater transparency with credit, and new technologies. Covid-19 will dramatically increase the demand for contactless, online payments, Apple Pay, Google Pay, QR codes and digital banking and payment solutions generally.
Even after the pandemic has ended, it is expected that consumer demand for contactless payments will remain strong and the habits formed during months of restrictions will remain.
Work is under way in the industry (banks, card companies and Payments New Zealand) to improve the normalisation of contactless payments, and to identify any impediments, be they cost, technology or regulatory.
Contactless payments are currently about reducing touch-points, increasing consumer control, improving security (yes it is more secure) increasing speed and convenience in-store, but the future looks different with shopping preferences shifting to credentials or tokens online and engaging with customers digitally.
Wider adoption around the world will accelerate development of contactless payment systems that will only enhance their value at the checkout counter further and be more digitally focused.
This will be invaluable for New Zealand businesses looking to lift their ecommerce capabilities and promote themselves to the world.
What the lockdown has shown is that online shopping has few barriers and with the increase in not only popularity but options and choice of shopping online, New Zealand retailers need to be future ready with shifting consumer preferences.
Eftpos occupies a unique niche, and while transactions will decline it will survive the wholesale shift to contactless. It’s the original, it’s free, but it will remain simply a way to pay for goods and services domestically while contactless evolves as a tool that retailers simply can’t live without.
What makes up Merchant Service Fees (often referred to MSF)?
- Interchange fee: paid to the issuer of the customers card (customers bank) to cover infrastructure and processing costs, fraud monitoring, risk management and innovation
- Scheme fees: paid to the payment scheme for secure transaction processing, settlement and connecting merchants and cardholders through a global network
- Transaction fees: paid to the payment switch – Paymark or Eftpos NZ — to cover transaction processing from the terminal
- Acquirer margin: paid to the merchants bank to cover operational costs such as staff, fraud monitoring, settlement processing, risk management, technology infrastructure, capital expense.