Guide for Merchants on Payment Surcharges

In this guide we summarise and comment on the Commerce Commission’s (Commission’s) guidance for merchants on setting appropriate payment surcharges.  We recommend that you read the full guide.


Merchants are organisations (whether or not for profit) that impose fees on customers (known as “surcharges”) for using some payment methods such as Visa and Mastercard.  We have written a related blog post looking at the Commission’s actions in this area and the potential for regulation of those surcharges.

As a starting point there is (as at the date of this guide) no specific law regulating fees merchants can  charge customers for using certain payment methods.  So the Commission’s guidance is not a statement of law.  However, it’s possible that the Commission will impose controls on surcharges (using its regulatory powers), if it doesn’t see improvements.  Also, some poor payment or pricing conduct could constitute a breach of fair trading law.

The Commission is concerned that, in some cases, customers are paying surcharges that are significantly more than the related costs incurred by the merchant.  The Commission is particularly focused on merchants who may make a profit on surcharges.  A key consideration is the service fees payment service providers (PSPs) such as banks charge merchants to access payment networks.  In the Commission’s view the surcharge should, in most cases, be no more than such service fees (but service fees can be “blended” to create a standard surcharge- see below).

This guide was written by Simon Papa, Ken Ng and Brandon Lim.  If you have any questions or if you would like advice on any of these matters you are welcome to contact Simon Papa.

* This is summary information only.  It does not cover all relevant matters and is not legal advice.  This guide takes into account law and guidance as at the date of publication.

Understand what service fees you are paying

The Commission says that many merchants are unaware of the service fees PSPs are charging them. The Commission strongly encourages merchants to understand those fees and to check whether their current plan suits their needs.

Consider whether it’s possible to avoid surcharging

The Commission encourages merchants to explore and compare different options for payment processing before implementing surcharges.  The most cost effective option will vary according to how the merchant collects payment.  If payments are mainly received in person then cash, and Eftpos and some debit card transactions (where the card is inserted/swiped through the terminal), should be cost-effective options.  PSPs do not impose per-transaction fees for Eftpos and some debit card transactions.

If payments are received online and transaction processing speed is a priority (e.g. online purchases on a website), then card-based payments (e.g. credit cards) may be the most cost effective option. This is because customer convenience and the benefits of immediate confirmation for both customer (e.g. immediate shipment of a good) and merchant (e.g. organising shipment) may outweigh the costs of higher PSP service fees and any related surcharges.

If payments are received online, but transaction processing speed is less of a priority (e.g. regular bill payments), then the Commission suggests that internet banking could be the cost effective option.  That’s because instant confirmation is not crucial and so customers can benefit from lower transaction fees.

The Commission does not refer to some commonly used bank-to-bank payment methods such as PoliPay, Wordline’s Online Eftpos, and Windcave’s Account2Account.  This appears to be because of its concerns about the security of those systems, some of which rely on using a customer’s username and password to access their bank accounts.

Transparency is key

Merchants must be upfront about any surcharges.  Surcharges should be prominently displayed on a website or in-store (as relevant).  Customers should be made aware that a surcharge will be payable when they make a decision on which payment method to use.  This allows customers to make an informed decision on whether they are willing to pay the surcharge or to opt for an alternative payment method.

Offer a payment method that does not incur a surcharge

The Commission expects merchants to offer at least one payment method that does not incur a surcharge.  As for any other payment methods, this payment method should be prominently disclosed to customers.

Set appropriate surcharges

The Commission expects that, in most cases, a surcharge should not exceed the actual cost the merchant incurs for accepting a specific payment method.  It notes that the actual cost is typically the value of the service fees charged by the PSP for that payment method.  It does not consider it is appropriate for merchants to charge for their own costs that are not specific to any one payment method (for example, costs associated with running a business such as POS system costs, wages, electricity costs).

The Commission says that merchants do not have to have a different surcharge for each payment method but they can if they wish (but it notes that this can be confusing for customers).  Instead, they can use a single “blended” surcharge for payment methods that are of the same type (even if the service fees for each payment type are different).  However, in such cases the Commission expects merchants to take into account the relevant revenue shares of each payment method when calculating the blended surcharge.  It provides examples of how to calculate an appropriate blended surcharge (see the Commission’s guide).