Canadian merchants face hike in Visa and MasterCard interchange fees

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• Historic Fort York David Spittal courtesy murmur.com
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Consumers may enjoy using their credit cards – especially ones offering rewards and enhanced benefits – but for many retailers, accepting the plastic will cost more this year.

Earlier this year Visa upgraded many of its customers to the Visa Infinite cards with increased benefits. Along with the increased benefits, much to the chagrin of merchants, came increased fees for accepting the cards.

Then, on Oct. 1, MasterCard changed its fee structure, increasing the charges for high spenders.

The fees, known as interchange fees, are a percentage of each transaction that the credit card companies and the issuing banks collect from merchants for every debit and credit card transaction used to make a purchase.

Various factors go into determining the size of the fee such as the card type, size of the merchant and other factors, but according to the Retail Council of Canada (RCC), for every $100 credit card transaction the average fee is $2.

These increases set off a protest by a coalition of Canadian associations led by the RCC. The group launched a website called Stop Sticking It To Us! to create publicity over the matter.   

“It’s mainly in response to what we view to be egregious behaviour by the two big credit card companies, Visa and MasterCard, in terms of fee increases,” said Derek Nighbor, RCC senior vice-president.

Nighbor said Canada has some of the highest rates in the world. The average rate for credit card transactions in Canada is two per cent of the sale, compared to Australia where the average rate is .45 per cent, and the United Kingdom where the average is .79 per cent.

Nighbor said Visa and MasterCard represent 80 per cent of the market in Canada, making for an non-competitive environment requiring some sort of government intervention.

“Australia has one of the lowest rates in the world because they have been regulating interchange very successfully for the last five years,” Nighbor said. “Even in the United States in June of this year they tabled legislation to get at increasing interchange-associated merchant fees and premium cards. We’re hopeful the Harper government is going to add this piece on to its consumer protection agenda and look at moving forward to bringing these practices in line.”

The RCC kicked off small business week on Oct. 20 by issuing a press release urging the Conservatives do just that.

Ultimately some of the cost gets passed on to consumers, Nighbor said.

Catherine Swift, president of the Canadian Federation of Independent Business, said the new fee structure makes it difficult for merchants to determine the price they pay per transaction.

“We’ll use the example of someone who goes into the dry cleaner and picks something up for $20 and uses a credit card,” she said. “The next day (the customer) goes and buys a car or some big ticket item on the card and a week after that they go to the dry cleaner. Suddenly, they are in a high-spend category and that dry cleaner, unbeknownst to them, pays a higher fee on that card all of the sudden, but it’s the identical card. How could the merchant ever know the costs until they get their bill?”

Both Swift and Nighbor want to see more transparency in how the credit card companies calculate these fees.

“We have a great debit system in Canada,” Nighbor said. “One of the reasons that it has been working well is because there has been some government engagement there.”

But even here merchant groups see a threat on the horizon.

Interac, the debit system in Canada, charges a flat fee averaging about six cents per transaction. However, Interac applied to the competition bureau to change its fee structure, leading to fears the restructuring will result in fees based on a percentage of the sale.

In addition to this is a concern that Visa and MasterCard will bring their debit cards to Canada with an interchange fee, rather than the flat fee now paid with Interac.

Visa and MasterCard provided written statements in response to the Stop Sticking It To Us! campaign.

In its statement, Visa said that its Infinite card is only available to high spenders, providing a benefit to retailers.

“By Visa’s rules, the product is only made available by financial institutions to higher-spending consumers. These consumers are often retailers’ own best customers, and value the ability to use their preferred card at the point-of-sale,” the statement said.

The statement noted that Visa debit cards are not issued in Canada and speculation about interchange rates for this service is “premature and inappropriate.”

Both MasterCard and Visa said that by accepting credit cards, merchants enjoy greater efficiencies in receiving payments with less paperwork and hassle.

According to MasterCard, when the Australian government mandated the reduction in fees, the reductions were not passed on to consumers and resulted in reduced cardholder features. MasterCard said that the latest increase in fees for consumer cards is the first in seven years and, in fact, the company claims that many of the adjustments will reduce merchant fees.

But for Chris Veriniotis, manager at Georgy Porgys Grill and Bar in North York, the fees are too high.

“They’re making way too much,” he said.

He’d like to see a system where if merchants hit a certain volume of credit card sales the percentage charged per transaction would lower.