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HomeTHE HOTTEST TOPICSFive days of financeUPDATED: Beyond the ‘No payWave!’ signs on the POS machine: Are SMEs getting left behind in the fintech revolution?

UPDATED: Beyond the ‘No payWave!’ signs on the POS machine: Are SMEs getting left behind in the fintech revolution?

In May 2018, New Zealanders used their electronic payment cards to make 146 million transactions. According to Stats NZ, these transactions totaled $7.1 billion. In that same month, Paymark processed nearly 109 million transactions. According to Paymark, New Zealanders are truly “embracing the seamless “tap and go” payments that contactless cards offer”.

Contactless payments use Visa payWave or Mastercard PayPass technology. This technology allows select New Zealand bank customers to use Apple Pay (ANZ and BNZ) or Google Pay (BNZ) contactless payments via their phones. ANZ, Westpac and ASB also allow customers to make contactless payments via their phone.

Ingeniously, contactless payments are not just limited to cards and phones. There’s a new era of ‘wearable fintech’, where everyday objects and accessories can be used for electronic transactions, including for making contactless payments. One example is Frank Green Pay coffee cups. The cups use inbuilt Visa payWave technology, making it easy for customers with Australian bank accounts to pay for their coffee. Frank Green is working on making this technology available to bank customers in New Zealand, as well as in other countries.

Given these advancements in contactless payments, it’s no surprise that customers prefer contactless over the traditional ‘insert chip’ or ‘swipe your card’ methods. This finding was confirmed by the The Merchant Contactless Study, which also stated that contactless merchants or retailers enjoy at least double the growth rates of non-contactless retailers. The study noted a number of other benefits for retailers who enable contactless payments, including better customer experiences, improved competitive advantages and greater operational efficiencies.

Deanna Yang of Moustache Milk & Cookie Bar confirms these findings. She says that if her business didn’t offer contactless payments, she’d lose approximately 60 percent of sales. She speaks highly about contactless payments, noting that “it’s how our customers prefer to pay”.

So, if contactless payments are beneficial for retailers, then why are there so many ‘no payWave’ signs obtusely plastered over POS terminals in stores?

The problem for New Zealand retailers is that often when a contactless payment is made, the transaction fee is higher than then what it would be if a customer swiped or inserted their card. These transaction fees add up, and are unsustainable for smaller businesses. In 2016 MBIE released an Issues Paper on whether New Zealand’s retail payment systems are working, and considered a number of issues, including whether consumers and merchants are benefiting from ongoing innovations in payment systems, and whether consumers and merchants are bearing a fair share of the costs. The most recent update from Payments NZ (March 2018) regarding the transparency of merchant services and interchange fees, is that Mastercard, Visa and the banks will provide reports which will “help raise confidence in the economic outcomes delivered by retail payment systems and ensure information is available to help improve competitiveness and efficiency in card-based transactions”. Further, the associated working group are discussing the possibility of producing guidelines that will provide a framework for ‘reviewing concerns raised by consumers and businesses.” However, as Payments NZ emphasises, this area lies outside of their mandate.

Interestingly, Paymark says that although retailers have been slow to adopt contactless payments, as more terminals are deployed, retailers have “become more comfortable with the use of contactless cards, the increase in usage is starting to ramp up”. However, it is yet to be seen if any progress will be made, and it is possible that real change may not happen unless the government steps in to better regulate the industry. In other countries, the market is regulated, making it easier for overseas retailers to adopt contactless payment solutions without the concern of increase in associated costs.

The high cost of contactless payment cards in New Zealand affects more than just SMEs. Fast food giant Burger King recently ceased contactless payments, citing high merchant fees. Perhaps contactless payments weren’t sustainable due to Burger King’s low prices offerings combined with a high amount of transactions per day. And although some retailers pass on surcharges to customers, for example by using Smartpay, their customers may as well go elsewhere, particularly if it’s a hop and a skip to the next dairy around the block. On the other hand, for retailers selling higher priced offerings, contactless payments do not necessarily speed up the process at the till. This is because if the purchase amount is over $80, the customer has to enter their pin anyway.

So, while we wait for action to be taken, New Zealand retailers will lag behind. While the rest of the world will be paying for coffees with their Frank Green Pay cups, we’ll still be seeing those familiar ‘no payWave’ signs on POS terminals. 

The text was changed from “every time a contactless payment is made, the transaction fee is higher” to “often when a contactless payment is made, the transaction fee is higher” to more accurately reflect the different rates of payment on offer from banks.

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