Diane Brisebois is president and CEO of the Retail Council of Canada
Wal-Mart Canada's recent decision to refuse Visa credit cards has been characterized by some as a Goliath v. Goliath fight. What has been largely overlooked is a closely-related item: Bill C-236, An Act to Amend the Payment Card Networks Act. Linda Lapointe's private member's bill would empower Canada's minister of finance to limit the fees that merchants may be charged for accepting credit cards.
There are no Goliaths involved on the merchant side in this second story, Bill C-236 having been inspired by the Quebec convenience stores association and supported by the 46,000 plus storefronts represented by the Retail Council of Canada. What these two stories have in common is a rising merchant frustration with the level of credit card fees known as interchange fees.
Every time a merchant accepts a credit card for payment that merchant takes a so-called haircut - it must pay the fee and receives less than the face value of the transaction. This reduction in the face value is due to interchange, a compulsory fee paid to the credit card-holder's bank. Interchange rates are set by two credit-card payment networks, Visa and MasterCard (which together account for 92 per cent of the credit-card market) and are non-negotiable for merchants. In effect, this allows the credit card duopoly to dictate the fees that merchants face.
While the issue might appear at first glance to be a business-to-business one, the main effect of high interchange rates is that they drive up the prices paid by consumers. This has been recognized worldwide and in studies by Canada's Competition Bureau. In a nutshell, these interchange rates raise prices for everyone, including on necessities like groceries and fuel. In total, they cost Canadian consumers over $5-billion annually.
Perversely, the highest interchange rates are on super-premium credit cards, which drive up costs for all consumers, irrespective of whether they would ever qualify for such elite-level cards themselves. This reverse-Robin Hood problem has been one of the core frustrations for all merchants, whether small ones like your local convenience store or large retailers such as value-oriented ones like Wal-Mart Canada.
So Wal-Mart has decided to vote with its feet and suspend Visa credit-card acceptance. Is this really a case of Goliath v. Goliath? Not exactly. Wal-Mart Canada represents less than 6 per cent of the Canadian retail market. Visa represents 64 per cent of the credit-card market (MasterCard Inc. represents 28 per cent).
Visa rules require that if a merchant accepts any one of its cards it must accept all of them, no matter how high their interchange fees are. Visa rules also prohibit any direct cost-recovery on transactions using those higher-priced cards so, of necessity, this cost flows through to the price of goods that every consumer buys. And now Visa is running an advertisement which castigates Wal-Mart for making its only remaining choice – refusing Visa's cards.
As the credit-card networks would have it, you must accept our cards, you must accept all of them and you must pay the prices we set and by the way, they're non-negotiable.
But there is a better way, as Ms. Lapointe's Bill C-236 contemplates. Worldwide, the EU, Australia, Switzerland and Israel, among others, have all moved to cap interchange rates. In Canada, the average interchange rate is currently 1.5 per cent, with some card fees running as high as 2.25 per cent. By contrast, in the U.K., the interchange rate is capped at 0.3 per cent, in France at 0.28 per cent, and in Australia at 0.5 per cent. So Canadian merchants pay five times what merchants pay in Europe and three times what merchants pay in Australia, for exactly the same services.
From a retailer's perspective, the same networks' ability to deliver their services at one-third or one-fifth the cost in other markets demonstrates that Canadian interchange rates are far higher than they would be in a truly competitive environment. Whether large retailer or small local store, we are calling on the Government of Canada to step up, as other governments have, and bring these fees into some kind of reasonable relationship to the cost of operating these networks and the value they provide.
Visa's recent ad has attempted to drive a wedge between small and large merchants, so here is the truth of the matter: If we had competitive rates, as they do in the EU and Australia, every merchant, Wal-Mart included, would happily sign on to a flat-rate structure.
That's why the Davids in our 46,000 Canadian storefronts are cheering on Wal-Mart's supposed Goliath in this fight.