The charges that a merchant must pay for processing customers' premium credit cards are much higher than those for regular-cost cards and some critics say those added expenses could cause significant financial distress for many small enterprises and lead to higher prices for consumers.
The processing charges for premium credit cards, such as rewards cards, recently came under fresh scrutiny when the Canadian Federation of Independent Business (CFIB) published a detailed rate chart that highlighted the difference in fees merchants must pay to process premium credit cards versus standard credit cards.
Why it matters for consumers
In order to get a sense of how much premium cards cost your local merchant, consider a regular Visa card that charges a merchant a swipe fee of 1.65 per cent versus a premium high-spend MasterCard with a 2.71 per cent levy. For businesses that process $100,000 worth of credit transactions monthly, the 1.06 percentage fee difference under the high-spend card costs an extra $1,060 per month or $12,720 annually.
Burdened by premium card processing fees, businesses say they are then forced to pass elevated costs onto their customers via higher prices. Neither merchants nor consumers reap any extra benefits from the more expensive processing fees, say critics.
However, credit card networks Visa and MasterCard counter that the credit card transaction fees help pay for consumer benefits, such as credit card rewards and credit card fraud protection, and without them, card companies would have to pass those higher costs on to consumers in the form of higher fees.
Premium credit card challenges
In a recent news release, CFIB senior vice-president Dan Kelly advised that "... over the last two years, many financial institutions have been pumping out premium credit cards to consumers." A prior CFIB publication also disclosed that, "Premium cards have been frequently issued without the request of the customer and now represent a significant and growing portion of the credit card market."
Ironically, Canadians can neither readily identify premium cards nor their magnified expenses. Most cards with "gold" or "platinum" in their names charge regular processing prices. For example, the President's Choice Financial MasterCard has some low-cost features, but is actually a premium card subject to much higher merchant processing fees than the SmartLine Platinum MasterCard.
Further complicating cost-comparisons is the fact that the Canadian credit card industry is crowded and has a confusing array of products. "There are a staggering number of cards on the market today in Canada, with over 200 MasterCard and Visa cards on our rate chart alone," explained Kelly.
Safeguards against excessive processing fees
Despite the glut of cards on offer, it's now possible for consumers concerned about the fees to quickly discern which cards are designated premium credit cards, thanks to the new CFIB rate chart. Clearly identified on the rate chart as either regular-cost or premium credit cards are 207 individual MasterCard and Visa products. Happily, dozens of the 137 regular-cost entries are rewards cards that don't impose sky-high processing fees on merchants.
And there's more good news for merchants.
The Department of Finance Canada has implemented a code of conduct to help regulate premium credit and debit cards. The federal government's code requires card processing networks to provide advance notice of any change related to processing rules and fees and allows merchants to opt out of those changes.
Premium consumer protection
Consumers are granted specific rights under the code, too. Premium cards and their above-average processing fees are now restricted to a well-defined class of cardholders based on their individual spending or income level. In addition, Canadians must apply for and agree to premium credit card requirements.
Shoppers also enjoy discounts that merchants can provide for using different:
- Methods of payment such as cash, debit and credit cards.
- Payment processing networks.
Discounts must be clearly marked at the point-of-sale, enabling consumers to choose the most cost-effective credit cards when they pay for their purchases. The code of conduct also reduces consumer confusion by forbidding debit and credit capabilities to be combined onto one payment card, as credit card companies have proposed.
To best apply these safeguards, the pro-merchant groups such as the CFIB encourage Canadians to switch to regular-cost credit cards, which can help support local businesses and keep consumer prices down.