Imagine if your bank demanded three per cent of every paycheque your employer deposited into your account -- just for the privilege of using the bank's services. The chances are good that you and a lot of other Canadians would get pretty steamed about it. You might even withdraw all of your money and demand future payments in cash.
Sounds like an implausible scenario, right? Well, it's not so inconceivable for hard-working small business owners all across Canada. If you want to know what's bugging the average small business owner, ask for his or her opinion about the credit card processing fees.
Every time you buy something with a credit card, it costs the merchant. Regular credit cards may impose fees just under two per cent, while some "premium" cards like Visa Infinite or MasterCard World Elite are even higher.
In case you're curious, there are hundreds of MasterCard and Visa cards out there, premium and regular. American Express doesn't issue premium cards, but all of its regular cards impose very high costs on smaller merchants. Of the major banks, Bank of Montreal and CIBC are the main issuers of premium cards, while TD Canada Trust and Scotiabank offer the fewest. None of Canada's credit unions, or the major financial institutions -- Desjardins, MBNA and Laurentian -- offer premium cards.
Refusing credit cards isn't a realistic option for small firms in this economy, and here's the rub: Visa and MasterCard rules say that merchants must accept all the cards within their brand (even the high-priced premium ones), and they aren't allowed to impose even a small surcharge on premium cards.
That isn't fair, and consumers are paying the price for those premium cards. Instead of charging the cardholders a bit more, merchants are forced to raise their prices on everyone to make up the difference.
That's the bad news. The good news is that small business is fighting back -- and winning. South of the border, as a result of a class action lawsuit, Visa, MasterCard and the banks that issue their cards have agreed to pay a whopping $7.25 billion in cash and temporarily reduced "swipe fees" to stores all over America. Stores are also now allowed to charge consumers a bit extra for using certain cards.
Here in Canada, the Canadian Federation of Independent Business (CFIB) has long acted as a watchdog over the payments industry, and we have had some success in keeping that industry fair, transparent and competitive. A few years ago, CFIB proposed, and the government implemented the landmark Code of Conduct for the Credit and Debit Card Industry in Canada.
The Code played a big role in saving low-cost debit in Canada, and it gave merchants some degree of power in dealing with the industry.
That said, the Code could use a bit of updating to deal with mobile payment options (i.e.: paying for things with your smartphone), some hassles small firms are having with card processing companies and the right to surcharge or refuse cards. In fact, the right to surcharge and refuse cards is supported by Canada's Competition Bureau. They've taken Visa and MasterCard to the Competition Tribunal to pursue these options for small merchants. A ruling is expected later this year.
As the voice of small business in Canada, CFIB supports both of those rights. Even if the Tribunal rules in our favour, it's doubtful that very many merchants would actually impose a surcharge on purchases involving premium credit cards. Merchants would be afraid of losing any customer to the shop down the street that doesn't add a surcharge. Instead, giving merchants the power to surcharge would even the playing field between small firms and the card companies, and lead to lower fees in the long run.
In other words, our objective is to change the behavior of the card companies, not to punish consumers. Earlier this week, I wrote a letter to the Canadian presidents of Visa and MasterCard to ask if they will voluntarily follow the precedent set in the American settlement and allow Canadian merchants to impose a surcharge on those pricy premium cards. Will they accept? Stay tuned.
In the meantime, if you want to do something nice for a struggling small business owner and reduce the upward pressure on the prices you pay, leave that highfalutin premium card in your wallet and use debit or cash at the corner store. You'll be glad you did.
I used to work for a POS software company and we had multiple customers driven out of business due to the shoddy anti-fraud security of credit card companies, which they have zero incentive to improve as they can just shove the losses up the merchant's ass, leaving them out money and product.
I like the convenience and added safety of using credit cards. I refuse to pay for a premium card, and clear my balance each month to avoid interest, but there are many advantages for using cards over cash. For myself, it adds a second layer of traceability on my purchases. I have lost receipts in the past but was able to use my credit card statement as proof of purchase with a retailer. I also use my cc statement to track my expenses. I can copy and paste my e-statement to a spreadsheet with ease. Can't do that with cash. I get airmiles, a minor perk but one that leads to free stuff in the end and I don't have a limit on my transactions before getting charged as is the case with my debit card.
Also why have a credit card at all you may as well use debit cheaper for everyone.
The fact remains that if you use a Credit or high fee Amex charge card the other customers are paying part of your fees.
Although to be fair the cost of handling cash is not zero many business would have to pay for security.
When you factor everything in, the cost of handling cash is higher than the cost of credit cards. This is especially true if you are required to take coins in any volume.
The reduced audit control, the human errors, theft/shrinkage, the extra time required to balance & deposit are often not factored into the cost of cash. With a sizable coin deposit, the bank fees are often similar to or larger than credit card fees. One dollar cash collected from a customer does not equal one dollar into the bank.
Those are just the direct comparisons. People buying by credit card, on average, purchase more than their cash doling counterparts.
It is true that tiny businesses with a fixed fee for service are an exception. E.g. barbershops. However, most small businesses would benefit from credit card usage.