MERCHANT CHOICE VS PRIORITY ROUTING: WHAT YOU NEED TO KNOW

Issue

MasterCard and VISA are aggressively promoting their debit products to merchants across Canada. The StopStickingItToUs Coalition believes that merchants must be able to choose the order in which various debit payment options are presented to their customer in order to control costs and to ensure the lowest-cost debit option is presented first. Visa and MasterCard are working closely with processors to effect priority for their products in the routing of consumer transactions. Merchants need to know their rights in this area.

Q: What is “priority routing?”

A. Visa and MasterCard may “co-badge” their debit products, with Interac service carried on the same cards as their respective debit offerings. Further, they intend to use “priority routing” to make sure that their products (Visa or Mastercard debit) are the default option when customers use a co-badged card.

Visa and MasterCard will accomplish this by programming the cardholder’s card to treat Visa/MasterCard as the default option and through programming POS systems.. These encoded cards and pre-programmed machines in your stores will route debit transactions automatically to Visa or MasterCard in the absence of a customer-selected override.

This issue is separate from the question of whether the cardholder will have the ability to choose the brand of debit service he or she wishes to use (Visa or Interac; Mastercard or Interac), but the cardholder’s choice will be prompt-based and subject to ‘priority routing’.

Q. What is “Merchant Choice?”

A. Merchants must have the right to choose the payment products and brands available to customers in their store, including the prominence and sequence that these products are presented to the customer. This is particularly important considering the impact on the merchant’s bottom if the default option is the more expensive option. Priority routing, whereby the sequencing is embedded in the card or an automatic function of the system, strips the merchant of the ability to present the lowest cost option first and thereby manage his/her own bottom line.

Q What do retailers need to know to help them control debit acceptance costs?

A. Imbedded priority routing prevents real competition among the card companies. Only if merchants are given a choice of which debit option is the default option will there be competition - not only for the customer’s business through rewards and features but also for the merchant’s business on price. A truly competitive environment would require up-to-date disclosure of fees and terms, and an ongoing capacity of the merchant to respond to price changes by reordering the priority in which it presents payment options to consumers.

Q. What steps should retailers take?

A. Merchants need to have a frank discussion with the credit card companies they have agreements with, and with their processor. Merchants should have the right to either refuse that product outright, or ensure that the lowest-cost debit option is presented first to the consumer. They need to understand the technical implications of their POS systems, and what it means for directing debit payments. Given the variety of POS applications, merchants may need to make systems changes and also may need to request changes are made by the merchant’s processor. There should be no cost to the merchant associated with making technical changes to their systems to eliminate priority routing.

What is the bottom line?

Merchants must be able to choose the order in which debit payment networks are presented to customers.

What we’re telling merchants, consumers and your elected officials in Ottawa…
1. Consumers and merchants must be given a meaningful way to exercise choice at the point of sale.
2. Merchants must be informed about how debit card transactions will be routed, and must be clearly understand the implications of routing decisions (pricing, timing of transaction posting, etc.).
3. Card companies, processors and card issuers should be prohibited from programming any priority routing decisions automatically in processing systems
4. Card issuers and the card companies should be prohibited from embedding debit card transaction ‘priority routing’ in cards.

Interchange fees

Big Credit Card companies collected more than $4.5 billion in interchange fees last year alone. The average Canadian family pays hundreds of dollars a year in hidden credit card interchange fees. Merchants are effectively left to pass along the credit card interchange fee to consumers in the form of higher prices. The credit card interchange fee increases the price of everything consumers buy, even those who don’t use plastic and choose instead to pay for their purchases in cash or by check.

These skyrocketing hidden fees, or credit card interchange fees, were originally intended to pay for transaction processing, but even as new technology continues to lower the cost of credit card processing, credit card interchange fees keep going up. 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.

Canadian retailers and small-business owners understand that average Canadians can’t afford these hidden fees, especially while the world’s economy is so uncertain. That’s why we’re fighting back.

Big Credit Card companies need to stop sticking it to us. Help us fight back!