Watch the National Hockey League playoffs and you’ve probably seen those television ads, pushing Visa cards for small everyday purchases.
The lighthearted campaign revolves around a made-up German word – “smallenfreuden” – and a fictional couple scandalized to see friends using a Visa card to buy drinks at a hockey game.
But there’s a lot more at stake here than how to pay for a beer. The ads belie a fierce legal and lobbying battle that has pitted Canada’s financial services industry against retailers and small business owners.
At issue are the roughly $5-billion to $6-billion a year in transaction fees that Visa, Mastercard and the banks pocket every time Canadians lay down their plastic. Smaller purchases represent a vast and largely unexploited market for the credit-card industry, and they clearly want more of it.
Retailers hate the fees, which can add an unseen 1.5 per cent to 3 per cent to every purchase.
The federal competition watchdog has argued the fees are high by international standards, and that the contracts used to enforce them stifle competition and handcuff businesses.
All sides are now anxiously waiting for a crucial ruling from Canada’s Competition Tribunal, which is due to decide whether retailers can put surcharges on credit-card transactions and freely choose which cards they’ll accept.
In January, interim competition commissioner John Pecman promised the decision would come “soon” in a case that was launched in 2009 by his predecessor, Melanie Aitken. Five months later, there is still no sign of a decision.
The uncharacteristic delay has left experts puzzled.
Yes, the case is among the most complex ever taken to the tribunal.
The political stakes are extremely high, and there is intense focus on the tribunal’s deliberations.
The case puts Ottawa in an awkward spot. On the one hand, a win for retailers appeals to a key Conservative Party constituency – small business owners.
But allowing retailers to impose surcharges and to refuse certain cards could also be a huge loss for many consumers – particularly those who have come to rely on cards for smallen- and largenfreudening.
Paying for drinks at the hockey game with a credit card – and many other things – could become much more expensive. The Consumers’ Association of Canada, for example, has warned that Canadians could be forced to pay up to 10-per-cent extra on some purchases if retailers get their way.
“Canadian consumers deserve better than prolonged silence in a world where the marketplace has moved on,” Consumers’ Association president Bruce Cran said.
Giving retailers the power to refuse some credit cards could also kill the lucrative premium card business. Retailers are now contractually bound to accept all cards, including premium cards. These cards typically have higher transaction fees, in part to reward customers with airline miles, points and other benefits.
Retailers counter that consumers who pay with cash are essentially paying the fees through inflated prices and subsidizing the benefits that go solely to credit card holders.
Surcharges are already legal in much of the world, including Europe and the U.S., where they were legalized this year following the settlement of a lawsuit.
They are, however, prone to abuse. In Australia, where surcharges are legal, some vendors treat them as a lucrative revenue source, slapping fees that far exceed transaction costs.
Australian taxis, for example, typically add a 10-per-cent charge on every electronic transaction. Some airlines add as much as $30 to tickets purchased with a credit card.
Responding to consumer anger, the Reserve Bank of Australia recently issued new guidelines to rein in excessive surcharges.
Many Canadian retailers aren’t waiting for the tribunal. Some stores also prohibit customers from using credit cards for purchases of less than $5 or $10 – in defiance of contracts with credit card issuers and processing companies. Others also add a surcharge on debit purchases.
Some merchants go the legal route by refusing credit card purchases or offering discounts to those paying cash.
There is nothing small about any of this.