Retail Payment System Bill

Members, when we rose for dinner break the committee had just considered Part 1 of the Retail Payment System Bill. We now come to Part 2. This is the debate on clauses 10 to 28, designated networks. The question is that Part 2 stand part.

I raise a point of order, Madam Chair. I seek leave for all parts to be taken as one question.

Is there any objection? There is.

Thank you, Madam Chair. We’re moving so rapidly with this bill; it’s a fascinating conversation, today. I just want to turn now to clause 12. This is the commission’s recommendation to the Minister that a retail payment network should be designated, and the Minister said earlier in his contribution, before the dinner break, that Diners and Amex were not part of the designation. This is set out in Schedule 1, I see at the back here, where MasterCard, both its credit and debit facilities, are designated under the designation order; this is Schedule 1. And Visa is designated, both in terms of its credit and debit products. My question to the Minister is: what’s the threshold that might lead to a designation occurring?

I do want to take this opportunity to correct a statement I made during the second reading, that I was under the view that Amex had been, effectively, designated or included in the provisions in Australia, and I now understand from them that that is not the case. But, in light of that, I’d be keen to understand from the Minister what might be the threshold, given both Diners and American Express are already operating in New Zealand, albeit maybe with relatively low market shares. But what is the test going to be? And I know that it sets out in clause 12(2) that in deciding whether to make a recommendation, the commission must take into account the features of the retail network, the nature—including the number, value, and nature—of transactions, and the Financial Market Infrastructures Act. But, really, I’m trying to understand: what are the broad thresholds that the commission might look at? Do you have to have a market share of 10 percent, 5 percent? What is deemed to be the point at which you might be contemplating—one of these other networks or, heaven forbid, we might get a bit of competition and more people, although the Minister was pretty reluctant to address the question earlier about how this bill is going to bring about competition. But what are the broad parameters that would mean that a network might be deemed to be necessary to be designated?

I note the member has asked a question in respect of clause 12. If he were to read subclauses (1) and (2) in clause 12, he might find the answer to his question: “In deciding whether to make a recommendation, the Commission must take into account the following: (a) any features of the retail payment network, or any conduct of participants in the network, that reduce, or are likely to reduce competition or efficiency: (b) the nature of the network, including the number, value, and nature of transactions that the network currently processes or is likely to process in the future: [and] (c) the Financial Market Infrastructures Act 2021 and any other regulatory requirements in … New Zealand laws that the Commission considers relevant.”

So it has a discretion, and the Minister, as laid out in clause 11, can accept a recommendation from the commission, should he or she choose in the future, but ultimately it’s the commission’s judgment about the impact on the market of the different networks that are currently in play.

I think the Minister was preoccupied when I was addressing the issue. I think he was talking to his advisers. I did refer specifically to clause 12(2)(a), (b), and (c), which he’s just conveniently repeated back to me. That wasn’t my question, Minister. My question is: what are the broad thresholds—and I use the tests around market share, because presumably there comes a point—and I know this specifies the criteria that might be used, but it doesn’t actually give an indication. Does American Express, if it had the 5 percent market share—would it be likely to be regarded as an entity or a network that would be required to be designated? That’s what I was trying to get, the broader picture, rather than just repeating back what I’ve just repeated to him.

In response to the member, as I did state before—thank you, Madam Chair—it’s at the commission’s discretion, and they are the experts on what’s going on in the market. And, of course, a Minister could request that they investigate things if there is public interest in the growth of a particular network, or concerns about harm, or a fear of undermining competition in the market.

Thank you. Well, I think we got to the same result, so let’s move on. So, in terms of the designation, maybe for the listeners that are tuning into this exciting exchange, could the Minister tell us how long a designation lasts for? Then, in clause 15(3), it talks about “If a network ceases to be a designated network,”. So I’m now putting the contrary view back to him: at what point, and I’m sure that the commissioner has got some jurisdiction around there—but what would it mean that a network no longer becomes a designation? So that was it. Because I was hoping the Minister might answer the question: what would mean that you wouldn’t become it? And presumably it’s not because you go out of business, because that’s self-evident. But if you get to a market share of 2 percent, which I think may be Amex’s at the moment, and hasn’t been designated, would that be a type of criteria that would be adopted to remove the designation order?

Equally, in clause 15 it states that a designation may be up to a period of 10 years, so there’s a clear demarcation in the bill around how long a designation will last. And of course, again, the member seems quite fixated on particular thresholds for different products in the market, but clause 12 lays out the conditions, as we have already canvassed in the debate, for the commission reaching a judgment about whether it is in the public interest to designate a particular network.

Thank you, Madam Chair. In relation to the question that my colleague actually asked, in similar vein in terms of designation, I do realise that there are many different ways that people now make payment with technological advancement, particularly using new digital wallets that we actually have through our smartphones and often social media platforms also provide payment systems through their apps. These are done through those digital wallets, whether it’s actually Alipay, whether it’s actually Kakao Pay or Apple Pay, for example. Often these are done, you know, connecting through the bank accounts but it also uses other forms of cards and I’m wondering why some of those have not been designated.

So the standards, for example, for the interchange fees for the designated networks will apply only to domestically issued cards in New Zealand, only to non-commercial credit cards, and to any payment instrument, not just physical cards, including virtual cards using methods like Apple Pay and Google Pay. So they are indeed captured within that framework.

Just moving on, this issue of issuing network standards and also in terms of the commission giving directions around network rules, there was quite a significant concern by some of the network operators that a network that operates across the world, and it just so happens that they also choose to operate in New Zealand—that the commission might try and unilaterally impose specific rules to New Zealand that couldn’t easily be put in place by the networks either, because they cut across all the other operations across the 192 countries in the world, or in fact just the time delay to do that.

So can the Minister provides some assurance to the committee and, I presume, the network operators listening to this conversation that replaced clause 19(b) that has been inserted, which reads “consult affected persons or persons that the Commission considers to be representatives of affected persons about the proposed standard code including the Commission’s reason for issuing the proposed standard.” or equivalent wording for directions that the commission might give—can the Minister just provide some certainty to the network operators that we’re not going to have a New Zealand Government or New Zealand Minister putting unnecessary constraints on those network operators?

Thank you, Madam Chair. I would observe that the schemes themselves already have different rules for operating in different jurisdictions that they themselves operate. And as I noted in my introductory comments, these directions do not have extraterritorial effect. They would only affect network rules in New Zealand.

Thank you, Madam Chair. I’d like to refer to clause 19, where it talks about “Process for issuing network standards”. It actually talks about—

CHAIRPERSON (Hon Jacqui Dean): Order! Order! Part 2—correct me if I’m wrong—is the debate on clauses 10 to 28, and is the member addressing clause 29?

No. It’s 19.

CHAIRPERSON (Hon Jacqui Dean): Nineteen. Thank you.

I did say 19, Madam Chair.

CHAIRPERSON (Hon Jacqui Dean): Thank you.

Thank you, Madam Chair. I shall clarify. It is actually Part 2, clause 19, “Process for issuing network standards”. It talks about how the commission must make a proposed standard publically available and also talks about how it will—in (b), it says “consult affected persons, or persons that the Commission considers to be representatives of affected persons”, and I’m wondering if the Minister has a standard for the commission on who the commission should consult with and how widely the commission should consult.

Ultimately, these are the kinds of decisions that the commission has expertise in, and I would expect them to apply appropriate judgment in the exercising of these particular responsibilities.