Future of credit card fees still up in the air

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There have been boatloads of discussions, but the future of credit card fees is still anyone's guess.

For the past two years, the expectation was that the federal Competition Tribunal would settle the issues around interchange fees, which are paid by both retailers and customers whenever goods or services are paid for with plastic.

Retail merchants want the right to put surcharges on credit card transactions to offset fees collected on each sale. They also want the freedom to refuse "premium" cards, which cost them more per transaction. The credit card companies and banks, meanwhile, point to other jurisdictions where surcharges are allowed, such as Australia, and retailers ultimately ended up gouging consumers by charging more than the cost of the credit card fee.

After a lengthy review, the tribunal decided that the matter didn't fall under the Competition Act, and punted the issue to federal Finance Minister Jim Flaherty. At the time, Mr. Flaherty said he was "carefully reviewing" the ruling and asked the government's FinPay Committee, which discusses payment issues, to meet "to discuss this matter and next steps."

That was in July. Since then there have been countless meetings, both bilateral talks between different banks as well as group discussions with FinPay, but it doesn't seem like a solution is any closer.

Despite "an enormous amount of activity going on," there is a "significant degree of friction" between merchants and the other players, Dave McKay, head of personal and commercial banking at Royal Bank of Canada, said in an interview.

Mr. McKay added "there is nothing concrete yet" in terms of an agreement to change the fee structure, if at all, or to rework how the system is regulated.

A consensus is hard to reach because there are so many players involved – the banks, the credit card companies, the merchants, the acquirers who operate card-accepting devices. They all have different priorities, and some are more willing to negotiate than others.

While disagreements are to be expected, the uncertainty is starting to weigh on the ecosystem – especially when it comes to the banks. Financial institutions are in a big battle to ramp up their credit card offerings, and many are investing heavily in these products. Yet it's hard to develop long-term strategies when no one knows what the future looks like.