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The Commerce Commission says consumers could save $250 million a year if the payments companies Mastercard and Visa cut their fees.
It has started public consultation on action that could be taken to bring down the merchant service fees the two payment networks charge for transactions not done done directly in a terminal.
Commission chair John Small said it was looking to encourage competition and efficiency in the $95 billion market run by the two card payment companies, which was costing businesses and consumers about $1 billion a year in merchant service fees.
"We see the opportunity to reduce a significant component of the merchant service fee, which should in turn allow businesses to reduce retail prices as well as surcharges, for the benefit of their customers."
He said the Commission believed the fees were "unnecessarily complex" which could be increasing the surcharges consumers face.
"We think this cost is too high, especially when compared to our international peers, and see the potential to reduce these fees by more than $250 million per annum."
Small said merchant service fees should cover only the costs of doing the transaction and a reduction would lower business costs and in turn retail prices.
Surcharges of around two percent are common in small businesses, especially in hospitality, for paywave transactions.
He said the Commission was "exploring" changes to fees which could see surcharges reduced to 0.7 percent or less.
The consultation would also also look at whether innovation was being held back the development or offering of new and more secure payment options that might occur through open banking.
"We see scope to both reduce fees and increase choice for the long-term benefit of New Zealand consumers and businesses," Small said.