What’s it all about?
Canadian consumers paid over $4.5 billion in hidden credit card fees last year alone - fees we all pay at the checkout to cover the cost of lavish incentive programs and corporate credit card benefits, even if you don’t have one!

Now these companies want to raise these skyrocketing hidden fees. With their plan, you pay more, your local retailer pays more and the only ones getting rich are the Big Credit Card companies. If they get their way, seniors, students and low-income Canadians will spend even more subsidizing corporate airfare points and luxury discounts every time they shop.

What are these hidden fees?
Called “Interchange”, the fee is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time a credit or debit card is used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but as much as $2 of every $100 you spend goes to card issuers.

How does it work?
Every time you use a Visa or MasterCard to pay at a shop or restaurant or gas station, you’re not only paying for your goods or services - you’re also paying a hidden fee to the Big Credit Card companies and the banks who issue their cards.

Click here to see the estimated components of interchange fees (Diamond Management and Technology Consultants).

Have a look at the diagram below to see how it works in practice.

How much does it cost?
Visa and MasterCard collected an estimated $4.5 billion in interchange fees in 2007.

Interchange fees are higher in Canada
Canadians are paying some of the highest interchange fees in the world, an average of two percent, compared with less than one percent in most other industrialized countries.

The proliferation of “premium” credit cards in Canada
In the past, premium or corporate credit cards, such as American Express, were a relatively small portion of the credit card market. They typically carried higher interchange fees than the cards used by most Canadians. It is because of this higher fee, that some merchants chose not to accept the cards.

However, Visa and MasterCard have recently reclassified a number of their cardholders as ‘premium’ customers, which has led to a rapid increase in the number of ‘premium’ cards being used in the Canadian market. This means that a higher percentage of purchases made by credit card carry the higher interchange fee. This puts the squeeze on merchants who are seeing their fees skyrocketing.

Visa launched its new ‘Infinite’ premium-type credit card in Canada this past spring. Eligible Visa cardholders were automatically sent the new card, which was marketed as adding valuable benefits for cardholders. What was not told to cardholders and merchants, was that the ‘Infinite’ card carried with it increased interchange fees.

At about the same time, MasterCard reclassified some of its cardholders into a ‘premium-type’ category. A new card was not issued to cardholders and neither merchants or cardholders were informed of this re-classification. The re-classification simply carried a higher interchange fee.

To determine how much Canadians acutally know about the credit card fees they pay, Retail Council of Canada comissioned a new study, conducted by Nanos Research, which found that:

• 55% of Canadians had a poor understanding of the fees associated with credit cards.
• 63% of Canadians believe that credit card fees are increasing with no noticeable increase in value.
• 77% of Canadians believe that credit card companies are not fully transparent in explaining their fees for credit cards.  

THE TOP 5 MYTHS ABOUT INTERCHANGE FEES

Myth: Interchange fees are set based on the cost of processing transactions. 

Reality: A $1 transaction and a $100 transaction costs about the same to process, yet the fee is based on a percentage of the total price of the sale – why?

Myth: The credit card market is competitive.

Reality: Two companies do not make a competitive market! Visa and MasterCard control the vast majority of credit card purchase volume.
Myth: Canada’s interchange rates are in-line with those in the rest of the world.
Reality: In fact, Canada has some of the highest interchange rates compared to other countries around the world.

• Australia - 0.45%
• UK - 0.79%
• Sweden - 0.90%
• Belgium - 1.35%
• US - 1.75%
• Canada - 2%

Myth: Merchants don’t want to pay interchange fees.

Reality: Merchants are not opposed to paying fees, as long as they correspond to the actual cost of the service that is rendered.

Myth: Interchange fees pay for security and fraud protection.

Reality: A large part of the interchange fee goes to cover the cost of lavish incentive programs, corporate credit card benefits and junk mail from the credit card companies.   

 

RETAILERS AND SMALL BUSINESS OWNERS SAY…

“Credit card companies are being less than forthright with information. Even the merchant services reps at our issuing bank are confused!”  

“I have never understood why we pay a percentage anyway. Why not just a flat transaction fee - the processing is the same whether it is $20 or $2000.”

“The cost of doing business in this country is now puting us OUT OF BUSINESS!”

“As a small independent retailer, any form of increase in credit card and debit credit card fees can make or break your business. If the costs continue to escalate, this will effectively capsize many businesses.”

“The large banks already make billions of dollars from user fees merchants and consumers pay. How much is enough before it really hurts the economy? “ 

CHALLENGING FEES AROUND THE  WORLD

 United States 

 

Europe