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The challenge: How to reduce Interac transaction fees


Electronic commerce = electronic costs.

"I know it's only $5, but all I have is my Interac card. Do you mind if I use that?" a customer asked.

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Rob Benson smiled outwardly, but winced inwardly. He was glad the customer had come to his store, but given the fees he paid every time he swiped a customer's cash card, he found himself wondering: Was there anything he could do to protect the bottom line?


Mr. Benson is a third-generation hardware retailer in Winnipeg. He took over his family's hardware store, Corydon Hardware, two years ago on the occasion of his father's passing. He had grown up in the store and knew the nuts-and-bolts of the business cold. He prided himself on the store's continuing prosperity in a retail world that had largely gone big box. However, while Home Depot and Rona increasingly dominated the do-it-yourself market, Corydon Hardware had found a niche that allowed it to coexist with the big guys.

Mr. Benson and his father had carefully defined and redefined their product and service niche. The store now carried a selected array of hardware, tools, lawn and garden supplies and housewares. It also offered customers a range of specialty services, including screen and window repair, and lamp and vacuum repair. This combination of slightly out-of-the-ordinary smaller ticket items and personalized services provided the store with a distinctive and enduring raison d'etre.

Other recent changes, particularly in the area of electronic commerce, were a different story. Customers increasingly showing up cashless – or more specifically, carrying nothing but a debit card that they used for even the smallest purchases – created a problem because every Interact transaction meant paying a fee. And in the case of debit cards this was charged on every transaction regardless of dollar value. For a while Mr. Benson had been renting a machine, but costs were adding up – at $40 a month, plus another $5 a month for Internet charges and 11 cents per transaction, he couldn't help but notice the small but steadily increasing implications for his store's bottom line. To top it off he was paying a 5-per-cent commission to MasterCard and a 2.5-per-cent commission to Visa every time a customer used a credit card instead of paying cash. Like it or not, an increasingly cashless society was here to say. So what, if any, were his options?

Non-options came to mind more quickly than options. Suffice to say he couldn't turn people away. However, he didn't like watching small transactions' margins essentially get gobbled up by the comparatively big transacting fees.


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So what did Mr. Benson do? To quote the age-old maxim 'If you can't beat 'em, join 'em." He "joined 'em" – or more specifically "bought 'em" – w hen a sales representative from a local e-commerce company pitched the idea of buying a point-of-sale (POS) machine. This meant that Mr. Benson's customers would pay 35 cents every time they chose to use Interac, with Mr. Benson getting back about half of that from the e-commerce company. To make the transition even smoother, the company, POS Systems, helped Mr. Benson switch his store over to the new technology. Other than the cost of buying the machine's special thermal paper, his only other expense was the $11 a month he'd need to pay for an extended warranty after the standard two-year warranty expired.

Mr. Benson noticed the savings immediately, which were only further increased when his transaction fees from MasterCard and Visa dropped to 1.85 per cent as a result of the store becoming part of a larger purchasing group under POS's umbrella. So rather than paying a higher rental fee for every transaction, the decision to buy a POS machine significantly reduced his transacting expenses. And that, in turn, let Mr. Benson wind up with a bit more, rather than a bit less, of a bottom line.

Special to The Globe and Mail

Reg Litz is a professor in the Asper School of Business of the University of Manitoba.

This is the first of a regular series of case studies by a rotating group of business professors from across the country. They will appear every Friday on the Your Business website.

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