Credit Card Merchant Fees
Credit cards are part of our everyday lives but most Canadians are unaware of the significant costs merchants incur by accepting credit cards. Canadian merchants pay more than $5 billion in credit card fees on Visa and MasterCard transactions. Over time, merchants pass those fees on to consumers, including those customers who do NOT even use credit cards, paying with less expensive methods of payment such as an Interac debit card or cash.
Credit card fees in Canada are among the highest in the world. Merchants who accept Visa and MasterCard credit cards pay anywhere from 1.5% to upwards of 3% of each purchase, nearly twice as much as their counterparts pay in Europe, New Zealand and Australia. Interestingly, the credit card companies have an even tighter hold over the U.S. where the fees are higher than in Canada.
The card acceptance and processing cost for an Interac debit transaction is a flat fee of about 12¢, regardless of the value of the purchase. So if you buy a spiffy new handbag for $200 using a credit card, the merchant coughs up about $5 in fees; if you use your debit card he coughs up just 12¢. So the credit card is more than forty times more expensive for the merchant to accept than a debit card.
Visa and MasterCard have imposed a bunch of rules on merchants:
1. Merchants can’t accept one kind of Visa or MasterCard and not another; they must eat the higher cost when you pay with a credit card that has all those bells and whistles you love so much. Yeah, those free points, they’re not free. The merchant – and eventually every consumer – is paying for them.
2. Merchants can’t apply a surcharge to a purchase on a high-cost card. Treating all cards the same means they end up passing the higher costs along to all consumers.
While Visa and MasterCard operate the two largest credit card networks in Canada, they aren’t the guys the set the interest rates on your cards or the fees for consumers using cards. The bank issuing the card does that. Visa and MasterCard simply provide brand recognition and services such as authorization and settlement of transactions.
The big question, of course, is why the transaction fee for merchants is so high in North America compare to other parts of the world. Could it be that our banks have cottoned on to the fact that they can rake in record profits without consumers having a clue that they’re being screwed? You see, the fee Visa and MasterCard charge merchants actually has three components: the network fee, the interchange fee and the service fee. Of the fees paid, 80% or more goes to the “interchange fee” which is kept by the bank that issued the card.
So banks make money off your credit cards coming and going. Consumers pay an annual fee for the snappy points or travel miles they think of as free. More than half of all consumers pay record levels of interest on balances carried. And merchants have to pay huge fees, 80% of which get sent on over to that bank that’s giving you all those “free” points. Free? I don’t think so.
Sure some of those fees are the cost of doing business. But the whopper fees – the one charged on points cards – those end up eating into profits big-time, which is why those fees eventually get pass on to all consumers. The merchant’s got to make a living too.
I’m hosting a special edition of The Current on CBC radio dealing with money and we’re looking for peeps who would like to share their stories.
- Are you in a relationship with a money moron? Have you LEFT a money moron because could you just couldn’t take it any more?
- Are you carrying a crap load of debt and wondering how you’re going to get out? Feeling disheartened and not sure what to do next?
- Have questions you’d like to ask me about money and how to take control of it? For best chance of success, have a specific question in mind and don’t ramble too much.
Submit your story or question to firstname.lastname@example.org . See you on the radio!