Loyalty tax: an ongoing punishment for long-standing customers

Tristan Dakin, ANZ Country Manager

No one likes being ripped off. We’ve all experienced it, but how many of you realise you’re being taken advantage of right now? 

Research shows nearly nine in 10 New Zealanders are paying a loyalty tax on at least one financial product. Loyalty tax is an unfair (and common) occurrence where customers pay a premium for sticking with one provider for a long period of time, while newer customers are enticed with lower rates or fees.

It’s shocking to think about, but many of New Zealand’s biggest businesses are getting away with this. Think about your broadband providers, gas and electricity retailers, TV networks, and mortgage providers and consider how long you’ve been with them. You’re almost certainly paying a lot more than you would if you regularly shopped around for a better deal. 

Some businesses out there are doing the right thing, offering fair and transparent prices to all customers. However, these brands often have a harder time getting a customer’s attention, especially when competitors are offering eye-catching deals to new customers, such as a new TV or the first three months free.  

Sometimes loyalty tax is easy to spot, and other times you need to dig a little deeper. 

Let’s take a look at banks. For a long time, banks were our only option when it came to organising our finances and moving money. Banks set the fees and we had to follow them if we wanted to play ball. They had a monopoly on banking services and Kiwis were sticking by them - even now, the four largest Australian owned banks account for 85% of bank lending in New Zealand.

With the rise of fintech companies in New Zealand, Kiwis now have more choice (and more power) when it comes to who they want to partner with for tasks typically reserved for banks. What was once a compulsory bank fee, is now a form of loyalty tax. 

Did you know that every time you make an international transaction through your bank, you’re paying hidden (and avoidable) currency conversion mark up fees? This might be when you’re shopping online on an international website, booking overseas accommodation, spending while travelling or sending money to loved ones afar. In the latter case, you’re most likely also paying a transfer fee on top of the hidden currency conversion mark-up. 

More than a quarter of the New Zealand population were born overseas and 60,700 people emigrated in the June 2022 year - so it’s clear that Kiwis have strong ties overseas and are likely to process a lot of international transactions. Previous research revealed hidden currency conversion fees cost Kiwis billions.

But the onus shouldn’t just be on the customer, regulators have a role to play too. While we’re already seeing action from regulators around the world calling for an end to non-transparent fees and hidden foreign exchange markups - we’re not seeing that on our own shores. We'd love to see the New Zealand Government follow suit: it isn’t consumers’ responsibility to cut through the deception.

In economic times like this, with inflation more than 7%, we really can’t afford to continue paying loyalty tax, especially while the Australian owned banks in New Zealand are some of the most profitable in the world. 

Make 2023 the year you review everything you spend money on to ensure you’re not being taken advantage of and paying for someone else's discount. This will add up and make a tough year a little more manageable. Spend some time researching and shopping around for the best deal - keep a careful eye out for the companies that don’t necessarily have flashy deals, but offer consistent transparent prices that will save you money in the long run. Hopefully one day, this won’t be your responsibility and regulators will step up to ensure the market is transparent and free of loyalty tax.