THE BLOG

Your Credit Card Is a Big Cost to Small Businesses

10/25/2013 05:45 EDT | Updated 01/23/2014 06:58 EST

Today marks the second annual Small Business Day in Canada. Organized by the Canadian Federation of Independent Business with support from Interac Direct Payment, this unique day represents an opportunity for Canadians to support local families and home-grown jobs by shopping locally.

Canada's small- and medium-sized enterprises (SMEs) are at the heart of our economy. SMEs are the engines of innovation and job creation that create thriving and prosperous communities.

Whether it's the local butchery, bakery or flower shop, making the choice to shop at local small businesses -- the core of local economies -- helps ensure jobs and your dollars remain in the community where you live.

Small business owners create jobs, employ local people and support charitable ventures within their communities. They also reinvest in the local economy. When we buy locally, we help to strengthen our communities, maintain local wealth, expand businesses and create new employment.

These vital businesses are facing a serious challenge, however: their costs are skyrocketing due to the excessive credit card processing fees, known commonly as merchant fees that the large credit card companies charge.

Canada's small business owners pay some of the highest credit card processing fees in the world. The average rate in Canada exceeds two per cent of the gross purchase price -- meaning businesses pay $200 or more in processing fees for every $10,000 that they process. In Australia the average rate is approximately one per cent while merchants in the UK pay less than a one per cent. These exorbitant processing fees in Canada result in reduced profit margins for merchants, stunted job growth, and higher retail costs for consumers, regardless of their payment method.

While many consumers enjoy from the "free" perks associated with using their credit cards, this is largely a game of smoke and mirrors. Small businesses and other consumers who use cash, debit, or non-premium credit cards pay for these "free" rewards. Further, the excessive merchant fees charged to small businesses force them to cut back on staff and charge higher prices to consumers.

The Federal Reserve Bank of Boston has estimated that, on average, each cash-using household effectively transfers $149 to credit card-using households annually. This in effect constitutes a regressive transfer from poor consumers to the rich, while undermining the commercial viability of many local small businesses.

New Democrats have been actively combating the rising cost to small businesses of accepting credit card payments. We have consulted widely with business owners and consumer groups across the country to determine how to best create a balanced payments system. SMEs are vital to sustaining and growing Canada's economy over the long-term. The NDP will continue to move forward with practical cost saving measures that are fair for credit card issuers, small business owners and consumers.

The importance of supporting retailers and manufacturers operating where you live goes beyond the bottom line. Local retailers benefit when consumers use debit or cash. Your choices and actions help support the businesses that in turn, support and sustain your communities.

On Canada's second annual Small Business Day I encourage all Canadians to pop into the local bakery, coffee shop, or butchery and make a real impact in your local economy. While you're there, put away the credit card and choose debit or cash instead -- your local merchant will truly appreciate it.