Coalition seeks lower price for credit-card services

Merchants say big card companies are stacking deck with 'hidden' fees

By Laura Severs - Business Edge
Published: 10/17/2008 - Vol. 4, No. 21

The cost of using credit cards is getting more pricey than priceless, according to Canadian merchants, who claim Visa Canada and MasterCard Canada are engaging in a cash grab.

Business associations across Canada have banded together in a coalition to fight what they call "hidden fees" that are coming out of their pockets.

Interchange fees - the percentage of each transaction that Visa and MasterCard collect from merchants every time a credit or debit card is used to pay for a purchase - cost Canadians $4.5 billion last year, says Derek Nighbor, senior vice-president of national affairs for the Toronto-based Retail Council of Canada (RCC).

"This is one issue where retailers and consumers are on the same page," says Nighbor, whose group is leading the charge behind the new "Stop Sticking It To Us" campaign.

The coalition includes 16 groups, including the Canadian Convenience Stores Association, the Canadian Jewellers Association, the Hotel Association of Canada and the British Columbia Restaurant and Foodservices Association.

Nighbor says retailers, restaurants and charities believe they should be paying a price for credit-card services, "but it has to be a fair price."

The coalition says its members are paying to prop up other services offered by Visa and MasterCard to consumers, such as loyalty points and rewards programs.

In just a three-week period last month, the coalition says, the credit-card companies collected more than $264 million in "hidden" fees from Canadians, with those funds coming primarily out of merchants' pockets.

Nighbor says studies have shown only 13 per cent of interchange fees go to the cost of processing credit-card purchases, with as much as 44 per cent being directed to the costs of rewards and marketing.

It's not just merchants that should be concerned, adds Nighbor. "Why should the average Canadian care? This is going to affect the cost of goods and services and it already has," he says.

The Canadian Federation of Independent Business (CFIB), which represents about 105,000 small businesses across the nation, has launched a similar campaign.

CFIB president Catherine Swift says the credit company cash grab involves new premium cards for consumers who spend above certain thresholds, with these cards carrying higher interchange fees for merchants.

Swift adds merchants may also be unaware that some credit cards that don't carry high interchange fees can be deemed as high-spend cards when the issuing bank detects a certain dollar amount has been reached, in turn triggering a higher interchange rate.

"The other interesting thing is when we first heard of these new cards, we heard that they would be a small proportion, one to two per cent, of the total number of cards," she says. "Initially that was the expectation, that it would be a pretty small slice for a premium card. But now we've heard that it's up to 30 per cent. They're (premium cards) being pumped out there so they can make more money."

The CFIB is also concerned about debit card fees merchants could be paying in the future if credit-card companies enter the debit-card sector in Canada, currently handled by Interac, whose members include banks, trust companies, credit unions and technology and payment-related companies.

She fears credit-card companies could favour a fee based on a percentage of the debit transaction size, increasing costs for merchants.

"These changes are designed for one reason, to reap larger profits for banks and credit-card firms and complicate the merchant's ability to know what they are paying to process transactions," says Swift who notes that consumers haven't asked for premium credit cards.

Both Visa and MasterCard declined to be interviewed for this story.

Instead, the two issued prepared statements.

Visa says that more retailers are choosing to accept their cards because of the value they deliver.

"Visa remains committed to the development of products and services that deliver value to all participants in the payment system," the statement says, adding that premium cards have been introduced to offer benefits comparable to competitive products such as American Express.

MasterCard says merchants are not required to accept credit cards, but are choosing to do so in increasing numbers. It also adds that contrary to the statements made by the CFIB and the RCC, there have always been different types of cards in Canada with different pricing structures.

"Just as retailers and independent businesses adjust prices from time to time in response to various market circumstances, card fees require adjustment as well. In fact, not all of the recent adjustments resulted in increased cost to the merchant," MasterCard says in its statement.

But at least one retailer says he's at the mercy of the credit-card companies after checking his most recent statements for interchange fee charges.

Brad Seamans, president of Calgary-based Rogers Rent-All Ltd., says instead of just one commission (interchange) rate, three different commission rates have appeared.

"One line item uses the old commission rate and the two (new) lines have commission rates about 18 and 30 per cent more than the other line. The first line is what it's always been," says Seamans, a CFIB member.

"It's early to say how much of a cost we are talking about, but it will probably be thousands of dollars a month in additional interchange fees."

Seamans adds merchants don't realistically have the option of not accepting credit cards.

"They are virtually currency these days and you have to use them if you want to do business," says Seamans, who is considering offering discounts if customers pay by cash or cheque instead of using plastic.

The Canadian Jewellers Association (CJA) is also apprehensive.

"We're concerned," says CJA president and CEO Ken Mulhall. "Our retailers are sensitive to the challenges in the economy these days and want to remain competitive, but if the fees keep increasing and impact their operating costs continuously it would be very challenging for the retailer."

Canada is one of the few countries where the government doesn't regulate credit-card fees, he adds.

"We've also noticed that Canada has one of the highest interchange rates and that's why we'd like to them step to the plate and show some leadership in this area."

Both the CFIB and RCC say that American Express is not a target of their campaigns, as the company has a smaller share of the credit-card market and already has higher fees for merchants who accept its cards.