CREDIT CARD CHARGES
RILE SMALL BUSINESSES. THEIR SOLUTION: PAY CASH.
Bookstore owner Adrian King-Edwards doesn’t take credit cards. Nor debit cards. Only cash. It’s cheaper that way — no fees to pay to MasterCard or Visa or the banks. That doesn’t stop new customers from whipping out a card anyway. In an increasingly cashless society, it’s routine to pay that way.
“We have a shelf of 50-cent books outside the store, and customers come in and want to use their debit card — they have no cash,” said King-Edwards, owner of The Word.
“I take them by surprise and I say: ‘Well, why don’t you pay me next time?’ And this floors them,” said King, whose shop is on Milton St. in the McGill ghetto.
“They inevitably come back with a couple of quarters.”
A pizza joint up the street doesn’t take cards, either. Neither do many other small businesses across the city and province, from Schwartz’s deli to Communauto. Why not? Simple economics. For every purchase made on Visa or MasterCard, merchants pay between 1.5 and three per cent or more in transaction fees.
The fees go even higher if the card is a premium card, an increasingly popular option that gives the purchaser travel points or other benefits.
In 2009, Canadians charged more than $240 billion on their Visa and MasterCard — about 90 per cent of all credit-card transactions, according the federal Competition Bureau.
The cost to merchants? About $5 billion in fees.
Most of the take — 80 per cent or more — goes to the banks that issue the cards, and are called interchange fees. The rest goes to the card companies and service providers.
And the fees are rising.
This month, MasterCard disclosed that it plans a 20 per cent increase in fees on July 1, according to the Canadian Federation of Independent Business. The move follows a similar hike by Visa.
Canada has the secondhighest credit-card fees in the industrialized world, after the U.S. They’re almost double what merchants pay in Europe, Australia and New Zealand.
That’s way too much, the bureau and other critics say.
High fees, they argue, have an inflationary effect on consumer prices: Merchants charge more to recoup the cost of taking cards.
The solution? Cap the fees for credit cards at a lower rate, they say, and allow merchants to charge customers more for using them — and more again if they’re premium cards.
This will encourage people to either pay cash or, more conveniently, use Interac or other debit card, whose transaction fees are four times lower than credit cards, critics say.
Since 2010, card companies have adhered to a voluntary code that’s meant to cushion small businesses from costheavy practices.
For example, the code allows merchants to cancel their contract with the card companies without penalty if they object to a fee increase.
But as the rules now stand, Visa and MasterCard still require merchants to accept all varieties of their cards — a so-called “honour all cards” policy written into their contracts.
Stores can offer discounts to customers who want to pay with by debit or cash instead of a credit card, but they can’t surcharge for credit-card use.
Little wonder, then, that some have opted out completely.
“It’s the Wild West of interchange fees now,” said federal NDP consumer protection critic Glenn Thibeault, who began a cross-Canada tour Monday to meet merchants and raise awareness of the issue.
“The only competition we’re seeing now is between MasterCard and Visa to see who can get their rate higher,” the MP from Sudbury, Ont., said.
Two years ago, the federal bureau took both companies to the Competition Tribunal to get them to change the rules to better favour merchants.
Hearings wound up last July. A ruling was expected in December but has been delayed. The tribunal does not say when its decisions will be rendered or released.
The case coincides with a 2005 lawsuit settled last summer in the U.S. that saw Visa, MasterCard and major banks agree to pay retailers at least $6 billion for fixing fees.
Under the settlement, U.S. merchants are now able to charge customers more if they use a credit card — something unheard of now in Canada.
Responding to its critics in this country, Visa in December issued a “fact sheet” to “dispel the myths” propagated about the fee issue.
Among its claims: Fees for two new Visa Infinite premium cards for big spenders that it’s launching next October will carry higher fees, but they’re not exorbitant — only two to 2.65 per cent.
As well, interchange fees in Canada can’t be compared to places like Australia, “where government intervention has altered the competitive landscape,” Visa says.
“There is a cost of electronic-payment acceptance, but it’s no different than any other cost of doing business,” Visa Canada official Brian Weiner said in a recent interview.
“Canadian merchants choose to accept Visa as a form of payment because of the value they receive,” Weir, head of strategy and interchange, said from Toronto.
Those benefits include “guaranteed payment, enhanced security, reduced cash-handling costs and the opportunity to expand their business into online channels.”
Service companies, which supply the point-of-sale card readers used by merchants and authorize and process transactions, agree.
To stay competitive, however, some are now offering to absorb Visa and MasterCard’s fee increases themselves, rather than charge merchants more.
“We understand why they made the business decision to increase rates,” said Frank Loschiano, senior vicepresident of sales and marketing for Montreal-based Pivotal Payments.
“But we feel the timing may be unfortunate right now, due to the weak economy,” said Loschiano, whose firm services 30,000 merchants in Canada and another 30,000 in the U.S.
Supporters of a more competitive fee structure want deeper change.
The CFIB has a small card on its website that merchants can download and display next to their cash register.
“Would you consider paying by cash or Interac?” the notice says, going on to complain about the “huge fees” charged by the banks and credit-card companies.
“Will you help independent firms keep prices down?”
Other retailer organizations have become involved, too.
In 2008, for example, the Conseil québécois du commerce de détail formed a coalition of 30,000 businesses — from hotels and restaurants to golf clubs and ski hills — to oppose fees.
They gathered thousands of signatures on a petition calling on the card compan- ies to give merchants a break.
Consumer groups also argue for new rules.
“People who pay cash shouldn’t have to pay a hidden fee for something they don’t use — the credit card,” said Philippe Viel, spokesman for Quebec’s Union des consommateurs.
“It’s like being charged for delivery even though you pick up the product yourself in the store. It’s not fair,” said Viel, who has a Visa card but uses it sparingly.
Jean-Pierre Aubry, aretired Bank of Canada economist who writes on public policy, believes the federal government should intervene.
“One of the important roles of government is to define the rules of the game and ensure there’s competition,” Aubry said from Ottawa.
“But this oligopoly of MasterCard and Visa wants to reduce incentives and charge for the most expensive way” — namely, the premium cards, he said.
In the meantime, what are merchants to do? Let customers know, some say, that the whittling away of already narrow margins will inevitably mean higher prices.
That’s why some don’t take cards — period.
“If on every sandwich you have to give 30 cents to somebody else, you know, it adds up,” said Frank Silva, who runs Schwartz’s on The Main, where sit-down meals are cash-only.
“Anyway, imagine the lineups at the cash if we started taking cards — we’re so small, there’s no room,” he said. (The deli’s takeout counter next door does take cards, however.)
At Communauto, acar-sharing service that operates in Montreal, Quebec City, Gatineau and Sherbrooke, members can pay their monthly bills online at their bank.
They can’t put it on their credit card, even though many would like to be able to in order to accumulate points and other perks.
“Our margins are very narrow, and card fees are a bit high for the kind of company we are,” Communauto spokes-man Marco Viviani said.
There’s another reason why some merchants don’t like credit cards: Not only can they be bad for small business, they can be bad for the community.
At his Marché Tradition supermarket in St. Côme, 100 kilometres north of Montreal in Lanaudière, owner Pascal Rainville takes all kinds of credit cards.
But when he shops in the village, he uses his debit card.
“For sure, I don’t use my credit card when I tank up at the gas station. The guy only makes two per cent profit. Why would I want to take that away from him?”
Personal choices can make a difference, he added.
“If we all stuck together and said to the card companies: ‘Look, we’re not taking your credit cards anymore,’ we’d solve the problem.”