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Nothing is given away for free in the financial industry, including the credit-card points that reward your spending with cash and subsidized travel.

If you collect these points, and who doesn’t in one way or another, you’re about to get a lesson on the economics of credit-card rewards. School starts when you encounter a business that charges a fee to process a payment on your credit card.

As of last week, businesses can add surcharges to a bill for payments made by credit card. Expect the charges to be around 1.4 per cent and higher. Retailers, restaurants and other service providers traditionally folded these credit-card costs into the price seen by customers. Now, they have the option of asking customers to pay them directly.

At a time of high inflation, surcharging customers for credit-card handling sounds like a terrible idea. Not surprisingly, a survey from the Canadian Federation of Independent Business suggests that a minority of retail businesses will go ahead with credit-card fees.

But these fees are in the mix now, and your credit-card rewards could be affected both directly and indirectly.

How Canada’s new credit card transaction fees will affect how you pay

The direct impact is on the net value of your reward points. Patrick Sojka, founder of, said the average reward program across the credit-card universe has a value of one cent or point per dollar spent, or 1 per cent. If you pay a 1.4-per-cent fee to pay using your credit card, you more than offset the value of that average reward.

“Credit-card fees are going to affect the mathematical value of rewards for the consumer who shops at a retailer that charges a fee versus a retailer who doesn’t charge a fee,” Mr. Sojka said.

Some cards offer higher reward rates that will exceed surcharges, Mr. Sojka noted. Two examples he cited are American Express Cobalt, which offers points at a rate of 5 per cent of spending on food and restaurant meals, and Scotiabank Gold American Express, which offers a 6-per-cent reward rate on spending at Sobeys, IGA and Safeway grocery stores and 5 per cent on other food/restaurant spending.

For these and other cards with higher reward rates, you have a judgment call to make when paying a retailer with credit-card processing fees – accept a haircut on your reward, pay with debit or cash, or go elsewhere.

There are additional considerations that might persuade you to use your credit card, even if your rewards are pared down or offset completely with surcharges. When you use a credit card, you benefit from being able to wait until your monthly bill is due to pay for your purchases.

Also, reward credit-card perks often include an extended warranty on your purchase or purchase protection, which may insure a new purchase against accidental damage, loss or theft. This coverage is particularly appealing when you buy electronics.

The indirect risk to reward-point collectors is that surcharges result in lower usage of credit cards and thus less revenue for card issuers, who then look at dialling back their rewards. “If credit-card companies see their volumes go down, then they have to look at where they can cut costs,” Mr. Sojka said.

You have to sympathize with the predicament of businesses as they cope with inflation and try to find a balance between their prices, their profit margins and the feelings of customers who feel bombarded by the soaring cost of living.

But charging a fee to process a card purchase rather than including this cost in retail prices seems a non-optimum solution in light of credit-card usage trends. A recent report from Payments Canada shows credit cards were the most popular way to pay for purchases last year, accounting for 33 per cent of transaction volume.

The volume of credit-card transactions grew by 6 per cent last year over 2020, compared to 5 per cent for debit cards and a drop of 9 per cent for cash. The number of credit cards in circulation increased by 2 per cent to 94.8 million in 2021, which works out to about 2.5 each for every Canadian.

Credit cards built this imposing market share in a system where the cost of reward points was invisible. Asking people to pay directly is a mental distinction, but it’s one with big implications for the credit-card industry and retailers themselves.

Asked what he’d do if a retailer charged a fee to process a card payment, Mr. Sojka said he’d probably still use his card. “I’d probably suck it up that one time and then make a mental note to not return to that retailer or merchant.”

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