When many of us go to swipe our credit cards, we don't usually think about the effect that decision has on merchants -- and even on ourselves. However, credit cards come with transaction fees that can be costly to to small businesses. In an effort to encourage credit card issuers and companies to tone down some of their fees, the Canadian Federation of Independent Business (CFIB) has been working on a campaign to help educate the public about how credit card use costs everyone.
Dan Kelly, Senior Vice President for CFIB, answered some questions we sent via email, explaining the efforts to improve the fee structure for merchants:
How Small Businesses are Impacted by Credit Card Fees
"We’ve been working actively on this file for the past two years," Kelly responds. "Essentially, for decades credit card merchant fees were not a major issue for small firms. Yes, some grumbled about the cost, but merchants accepted the system as it was."
The change happened about two years ago, Kelly explains. This was when credit card companies began offering "premium" credit cards. These cards, which include such offerings as the Visa Infinite, increased fees on the merchant, without providing any benefits for business owners. "Fees rose by 25% or more with no explanation. Merchants began to feel the pinch and we started asking questions," Kelly writes.
The CFIB decided that something needed to be done to prevent the same thing happening with debit cards: "After that, we learned of Visa/MasterCard’s plans to get into debit and bring the same bad fee structure to that system. CFIB pushed back and encouraged the Minister of Finance to introduce a Code of Conduct for the Credit and Debit Card Industry."
Educating Consumers about Credit Card Fees
Kelly continues: "It has done a good job – particularly in protecting low flat-fee debit rates and deal with the lack of information and disclosure. However, it has not caused a reduction in credit card merchant fees." In order to combat the credit card fees, CFIB is launching a campaign to educate consumers about the costs of using credit cards -- especially premium credit cards. "Most consumers are unaware that each time their credit card is swiped, the merchant pays 1.5-3% of the entire sale to the credit card company and bank." The banks, Kelly points out, often get a larger share than the credit card company.
Kelly says that the average cost to merchants is 12 cents when a customer pays with a debit card -- no matter how big the purchase is. "On a $100 sale, a merchant may pay $3 for a credit card and 12 cents for debit. That is a huge difference." Kelly believes that customers should know about this -- and realize that costs are on the rise for everyone. "The reason we are involving consumers is that they need to know that ultimately, they are paying the freight. These high costs do get imbedded in the costs of their goods and services anyway. Many consumers feel very positively about small business, and armed with the right information, may just pull out their debit card or a bit of cash from time-to-time, saving the merchant, and ultimately themselves, a bunch of money."
Small businesses can even help with the effort. The CFIB is providing a small sign at their web site. Business owners can print it out and place it on their doors or near their cash registers. The idea is to let customers know that there are "preferred" options, but that the choice is still theirs.
"The signs ask consumers to “consider” paying with debit or cash," Kelly explains. " We’re being very careful not to push this too hard as consumers should be the ultimate decision maker. Again, we’re not asking them to give up using credit cards altogether – just consider paying from time-to-time with a less expensive option."
What You Can Do
In addition to occasionally choosing to pay with debit or cash, rather than credit cards, Kelly thinks that you can help send the message that credit card issuers and companies are out of control. "Consumers can certainly help by switching a bit of their spending patterns, but also by selecting their credit cards carefully," Kelly points out. "Not all cards are premium cards and we’re working to provide merchants and consumers with a list of the cards that carry premium versus regular rates."
Consumers can ask their bank if their card is a premium card and consider a lower cost one whenever possible. Perhaps just asking the bank will prompt some though about the credit card fees, and show issuers and companies that we aren't happy with the state of things. "That is our ultimate hope for the campaign," Kelly says. "That enough consumer and merchant pressure will cause them to rethink their rates."