For many consumers, premium credit cards are attractive because they offer a chance to collect points faster and reap rewards such as free flights, electronics and jewellery.
Smaller business owners like Gerard Curran, though, say growing consumer demand for those “freebies” is squeezing their profits because it is merchants who really foot the bill.
“They know nothing about it,” said Mr. Curran, who owns the James Joyce Irish Pub and Restaurant in Calgary. “In actual fact, all they are concerned about is collecting points.”
The use of premium credit cards has risen dramatically since they first hit the market in 2008. But that high-end plastic – such as Visa Infinite or World Elite MasterCard – costs more for retailers to process than other standard, gold or platinum cards.
The annual cost Mr. Curran pays to process credit cards has doubled to nearly $70,000 since late 2008, he said, largely because 75 per cent of his sales are now made with premium cards.
Rick Fijal, owner of Fastsigns, a graphic design and sign business in Surrey, B.C., estimates his average cost for credit card transactions has risen about 30 per cent since mid-2008. His average transaction is about $375. If a customer pays by credit card, it costs Mr. Fijal about $9.30 on average in transaction fees, he said. An Interac debit card transaction costs 10 cents.
Now, a push by the Competition Bureau to lessen the load on merchants is setting the stage for a high-stakes battle with Visa Inc. and MasterCard Inc., which control more than 90 per cent of Canada’s credit card market.
In December, Competition Commissioner Melanie Aitken launched a legal action against the card giants. She urged the federal Competition Tribunal to quash “anti-competitive” business practices that inflate retailers’ credit card acceptance costs and, allegedly, the prices consumers ultimately pay for goods.
The costs are “particularly harmful for small and medium-sized businesses, key engines for economic growth in Canada,” Ms. Aitken said.
She recommended that retailers be allowed to slap a surcharge, or extra fee, on consumers who pay with premium cards, noting that merchant fees typically range from 1.5 per cent to 3 per cent of each credit card transaction and total about $5-billion a year.
Further, she wants the tribunal to scrap other rules that prevent retailers from encouraging consumers to use lower-cost payment methods, while forcing them to accept the companies’ entire array of credit cards.
Ms Aitken will file her next submission by Feb. 14, but her proposal has already ignited controversy.
Many small business owners believe that surcharges are needed. Garth Whyte, chief executive of the Canadian Restaurant and Foodservices Association, put it bluntly: “We need tools to be able to stand up to the bully.”
Visa and MasterCard are fighting the case, warning that consumers who use premium cards will be hit with extra fees if the Competition Tribunal sanctions the proposed reforms.
That leaves consumers’ groups in an unusual alliance with the two global credit card giants. The Consumers’ Association of Canada, for one, has accused the Bureau of abandoning Canadians by exposing them to “potentially predatory practices” by retailers. The association released a poll, conducted by Angus Reid Public Opinion, that found 90 per cent of Canadians oppose credit card surcharges.
Business owners are caught in the middle, reluctant to discourage customers but equally reluctant to pay the mounting costs.
The Canadian Federation of Independent Business contends merchants would be reluctant to impose surcharges, but giving them that power would effectively keep their processing fees in check.
That’s because Visa and MasterCard set the base fees, known as interchange in industry parlance, that help determine how much stores must pay to accept plastic. Payment processors then add various other costs to interchange before determining the final merchant fee.
