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Election 2008: a coalition of national business associations demand transparency in fees

By Julie King |

Many merchants are struggling with fee increases and higher premium fees charged when a customer uses a specialty credit card.

Others are unaware that their credit card charges have increased and could continue to do so.

Now a coalition of 13 organizations led by the Retail Council of Canada (RCC) are fighting back with a national campaign against the new charges and the possibility of credit card companies taking over the management of Interac services.

Diane J. Brisebois, president and ceo of the RCC, says that business owners have seen escalating costs in their merchant or "interchange" fees with the increased use of speciality and corporate cards. Interchange fees are the fees a merchant pays to the credit card company when a customer makes a credit card purchase.

Normal cards usually have an average interchange fee of around 2 per cent. So when a customer purchases an item for $100, the merchant will receive $98 from the credit card company.

It is not unusual for the interchange fee on a premium cards, such as a travel rewards card, to rise to 3 per cent or higher .

The higher fees were not as much of a problem when premium cards were only used by a small number of customers. However, today the cards are being given out even when they are not requested so that merchants now see up to 25 per cent of transactions done on these cards.

Also, with new admin fees, online fees, and percentage increases on premium cards it can be extremely difficult to figure out what is being charged and why.

"We can't say if the increase is now 2.5 or 3%." says Brisebois, "That is the point. The fees are convoluted and very difficult to identify."

Business can not decide to accept some cards and reject others, either.

To secure merchant status, which lets them accept payments by Visa and Mastercard, they can either accept all cards or none. Merchants are also forbidden from offering discounts to people who use normal cards.

The result is an anti-competitive environment where the merchant are forced to pay for marketing programs and premium credit cards that do not benefit them in any way.

Interac fee structure threatened

The Canadian Federation of Independent Business (CFIB) is another organization concerned about these issues. They recently sounded the alarm about threats to our national debit card system.

Currently debit card transactions are handled by Interac. A cooperative venture amongst Canadian financial institutions and others, Interac currently charges a flat fee regardless of the transaction size.

After being charged by the Competition Bureau with abusing their power in the payment sector, in 1996 Interac signed an agreement to operate on a non-profit basis and only charge fees to cover its costs.

Now Interac has applied to the Competition Bureau to allow it to shift to a for-profit business and change its fee structure.

This shift is greatly concerning to merchants and the associations that represent them.

Swift expects that would change to a percentage fee if the credit card companies took over. The resulting cost increases could be massive if that happens.

"This would mean, for example," said Swift, "for a transaction of $1,000, a current common flat fee would be $0.065 (6.5 cents). In future, if the charge was to become 0.65 per cent (the current U.S. average), the fee would be $6.50 - an increase of almost 10,000 per cent!"

Canadian fees high when compared to other countries

Compared to what merchants pay in other countries, Canadian merchants are charged very high interchange fees.

At 0.45 per cent Australia has one of the lowest interchange fees in the world, followed by the UK (0.79 per cent), Sweden (0.90 per cent), Belgium (1.35 per cent) and the US (1.75 per cent), according to, a website created by the Canadian coalition.

A key difference between Australia and Canada is the government regulation - or lack therof.

In Australia the Reserve Bank of Australia (RBA), the country's national banking watchdog, unsuccessfully sought a voluntary reduction in interchange fees. They then forced Visa and Mastercard to cut their fees in 2003, which brought them to an average as low as 0.55 per cent.

In the US litigation has been used to redress the imbalance. According to, a group of major stores like Sears and Wal-Mart reached separate out of court settlements with Visa and Mastercard, where Visa agreed to pay $2 billion and Mastercard paid $1 billion. The settlements also allowed businesses to choose which cards they would accept and on what terms they would be accepted.

How to achieve fairness for merchants

The associations who joined together to create have several goals. They want fairness and transparancy for both merchants and consumers. They also want to save our Interac system and prevent it from being restructured with percentage based fees charged.

To achieve transparency and fairness Brisebois has set four main goals.

  1. To develop more marketing materials to fight against skyrocketing fees.
  2. To ensure there are regulations that provide oversight accountability and transparancy.
  3. To see fees correspond to the service and value being provided to the merchant.
  4. To save our debit system as it exists today.

"Merchant's have no problem paying for service," says Brisebois, "but there needs to be a correlation between the value of the service delivered and the fees charged."

Merchants now find themselves in a difficult position with the holiday shopping season about to begin. Brisebois explains that their interchange fees have increase four times in the last year and they have seen cost increases in other areas as well, such as new fuel surcharge costs. Rather than passing these new costs on to the customer, most merchants have been able to leverage our higher dollar to maintain prices.

Yet now that we are entering the holiday spending season, unbeknownst to the consumer the credit card companies have just raised their fees again and merchants expect that fees may be raised a sixth time this year in October.

"The merchant is not out there trying to take advantage of customers. We want to see good competition between retailers in the marketplace," says Brisebois . "Shouldn't that be the same thing for the credit card companies?"

At the end of the day the real question is what will cause the credit card companies to change? Given the current lack of competition and transparency, federal regulations may be required if Canadians hope to see interchange fees closer to those charged in Australia.

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