GAME OF CARDS
A look at how Visa’s fight with Walmart over credit card fees will impact consumers,
Visa and Walmart Canada are embroiled in a dispute over fees charged to merchants. But what does it mean to you?
Why did Visa take out newspaper ads about Walmart on Wednesday? Visa and Walmart are in a battle over credit card fees charged to merchants. Walmart wants a better deal from Visa. Visa said it offered a lower rate, but Walmart wants an even deeper discount. Visa claims Walmart is asking for a rate lower than the one paid by charities and schools. How many customers are potentially affected by this? Visa is the biggest credit card company in Canada, with 54 million cards issued, according to Rob Livingston, president of Visa Canada. But a majority of Canadians have more than one credit card, making it easy for them to pay with a card other than Visa if needed.
Also, the phase-out of Visa cards at Walmart is scheduled to begin in Thunder Bay, Ont., in July, not in the GTA, which is the largest retail market in the country. So there is still time for the parties to go back to the table and hammer out an agreement before it begins to affect millions of people. Why is this happening in Canada? In Canada, Visa and Mastercard charge merchants fees that are as much as five times higher than fees charged in dozens of other countries, including those in Europe and Australia.
In some cases, governments have stepped in to regulate lower fees. In other cases, government regulators similar to the Competition Bureau have set caps on fees. The fee in Australia is 0.5 per cent, according to Karl Littler, vice-president, public affairs, Retail Council of Canada (RCC). In many European countries, it’s 0.3 per cent.
Ayear ago in April, credit card companies in Canada agreed to bring the average rate charged merchants down to 1.5 per cent, but the Retail Council says that’s still not low enough.
Gary Sands, spokesman for the Small Business Matters Coalition, said retailers are waiting on the results of a third-party audit to report on whether the credit card companies are in fact meeting this target
Canadian retailers pay about $5 billion a year in credit card fees, according to the Council. Why do the credit card companies charge so much more in Canada? Visa’s Livingston says Canada has one of the most developed and secure digital payment sectors in the world, due to the investments credit card companies have made using the proceeds from fees.
That includes tap-and-go services and payment systems that reduce the need for less secure payment methods, such as personal cheques. Do other big retailers get preferential treatment? Yes. Although the terms of the exclusive deal between MasterCard and Costco in Canada are not public, Sands believes it could be as low as 0 per cent, with MasterCard benefitting in other ways — increased use, more customers (who use the card outside of Costco, too) and publicity when Costco promotes the card. How do these deals affect other retailers? There is not a small business in Canada that has the negotiating power to move Visa or MasterCard, said Sands.
As a result, he believes, small businesses are subsidizing big businesses, which they can ill-afford to do. What do credit card companies provide for this fee? The credit card companies provide certainty of payment; they allow consumers to make larger purchases without having to apply for loans or save up cash, and if the consumer can’t pay the bill each month, they are providing an unsecured — and expensive — line-of-credit to consumers.
By offering incentives, they also help drive spending, which is good for merchants. If fees go down, will shoppers benefit? Perhaps, but only marginally. There is no independent study in Canada that has looked at whether retailers keep the difference or pass it on to consumers.
Walmart is promising to pass it on to consumers, but while the overall savings to Walmart could be huge, it will mean pennies to consumers on most individual purchases. If I’m paying cash, can I get a discount? Typically not. The system is based on the assumption that some transactions will be cash, so if you hold a super premium credit card with many rewards and benefits, you are doing better in this system than someone who is paying cash or debit, said the Retail Council’s Littler. How unusual is it for two companies to get in a public fight like this? There have certainly been lots of companies that have sued their credit card companies in the U.S. over the rates that they charge. But Littler says it’s the first time he’s seen it played out in media. Could this set a precedent? “I suspect this is a test, and the outcome in Canada will be demanded for the American operations, which are 10 times the size,” said Marvin Ryder, an assistant professor of marketing and entrepreneurship in McMaster’s DeGroote School of Business.