Canadian Credit Card Rates, Reviews & Applications
February 15, 2011
Hon. Jim Flaherty
Minister of Finance of Canada
jflaherty@fin.gc.ca
Minister:
Credit Cards Canada wishes to express its support for the recommendations of the Standing Senate Committee on National Finance in its report entitled "The Costs and Benefits of Canada's One-cent Coin to Canadian Taxpayers and the Overall Economy".
Furthermore, Credit Cards Canada urges the Government to include these measures in the upcoming federal budget, thereby cutting up to $10 million from the federal budget - one of the very few budget cuts that will make Canadians cheer.
Credit Cards and Other Means of Electronic Payment Have Made the Penny Obsolete
In a world where plastic has become the preferred method of payment, and online shopping is on the rise, there really is no need for the penny. The practically valueless penny is obsolete. So why are we still minting them?
The fact of the matter is that many of our financial transactions take place electronically. Online spending is surging in Canada. According to Statistics Canada, " Canadians used the Internet in 2009 to place orders for goods and services valued at $15.1 billion, up from $12.8 billion in 2007". No one needs pennies when making purchases over the Internet. On top of that, even those who aren’t shopping online don’t use pennies. The use of credit cards and debit cards is on the rise, so there is little need for cash to change hands. According to a Nilson Report in May of 2009, Canada is 5th in the world in terms of credit card use and debit card use. This is especially significant when one considers that the #2 (Europe), #3 (Asia), and #4 (Latin America) positions are regions, rather than individual countries.
According to a 2007 survey by financial company Desjardins, only 37% of Canadians actually use pennies. That number would surely be lower today. Those that do "use" pennies hoard them or simply give them away. An insignificant number of people carry pennies in their pockets, which are generally considered to be a nuisance.
There is no reason for them to be produced at the rate at which they are being made. And yet, pennies continue to be produced at an astonishing rate. Desjardins estimates that the government produces 816 million pennies per year. That is 23 pennies per person, despite so few being used. The Royal Canadian Mint is forced to produce so many because so few pennies are actually kept in circulation.
It is a burden on small businesses to have to handle pennies. They take up space, are time consuming to sort and count, and add to the complexity of transactions and accounting. Small businesses forced to handle pennies, spend time and money to deal with these near-worthless coins, detracting from more productive activities, including business development and customer service.
For small businesses, various forms of electronic payment are more convenient, including credit cards, debit cards and mobile phone payments that are on their way. It would be more convenient to not have to deal with pennies – especially since various forms of plastic have made it much easier to process transactions.
Pennies are inconvenient for consumers and small businesses alike. Keeping them in circulation only serves to further aggravate the situation – while costing the country more than it should. Some may argue that businesses might not want to deal with merchant transaction fees from the use of credit and debit cards by consumers. However, the Senate Committee report makes it clear that a change in payment methods would not be effected:
In sum, there should be no net shift in payment methods, even if consumers consistently choose whichever payment method allows them to pay the lower price, and no overall advantage or disadvantage for consumers who use either method of payment.
While people and companies are often ready to pay extra for added convenience, it is surprising that Canadians would pay extra for reduced convenience. Yet that is exactly what Canadians are doing, paying for the estimated 816 million pennies minted each year.
Just how much are Canadians paying?
Taking the best case, the Royal Canadian Mint's relatively "rosy" estimate, pennies in circulation are worth only 20% of what it costs to make them. In other words, for every dollar taxpayers give the Mint to make pennies, they walk away with only 20-cents of spending money. The Mint keeps the rest.
The outside estimates, from Desjardins and Wilfred Laurier University are even more damning; taxpayers have to pay the Mint $1.50 to $1.80 for the pleasure of carrying around a dollar worth of pennies in their pockets.
Chande and Ficher point out that the inconvenience and user cost associated with the penny are figured in addition to the actual costs, it becomes apparent that the penny is more trouble than it is worth – literally.
Efforts to get rid of the one-cent coin have been underway for years. In 2008, a private member’s bill was introduced to remove the penny from circulation.
New Zealand (which has removed both the penny and the nickel from circulation), Sweden and Australia are already making do without the penny. Using a method called Swedish rounding, which is used in Sweden, Australia and New Zealand, prices would be rounded up or down to the nearest five cents. This method recommended by the Standing Senate Committee on National Finance to replace the need for the penny would make it easier to figure actual retail prices, creating a simple system of cost estimation for consumers and saving retailers time and money counting and accounting for pennies.
Here is how David Boyd, Founder of Credit Card Compare in Australia, described the penny phase-out in Australia:
In Australia 1c and 2c coins were phased out way back in 1992. At that time the older generation, who had lived on old shillings, pounds and pennies, were reluctant to the change. The younger generation thought that 1c and 2c coins were a nuisance. After a short time the opposition to the phase out faded away as people realised it was a good idea. Today, the penny phase out is remembered as a minor issue as people use larger value coins, debit cards and credit cards for transactions. To give an example from today, your total at the supermarket may tot up to $4.98 and if you pay on a credit or debit that's exactly what you'll see on your bank statement. For cash payments it gets rounded to the nearest 5 cent value. Some people might get a bee in their bonnet when they buy something worth $4.98, hand over $5 in cash but they don't get their 2 cents change back. They might leave feeling, "Hey, where's my two cents!". I remember feeling like this when I emigrated to Australia from the UK where one and two pence coins are still in operation. One and two cent coins are still legal tender but you never see them in circulation. Interesting, some of the 1c and 2c coins were melted down and incorporated with bronze to make the bronze victory medals for the 2000 Sydney Olympics. Perhaps Canada could do something similar with all their old pennies.
In the middle of 2010, a committee was formed to determine whether or not the penny should be scrapped. In December, 2010, the Standing Senate Committee on National Finance made its recommendation: Get the penny out of circulation without delay. Inflation has destroyed the value of the penny, and it is too costly to make. With consumers turning more and more to non-cash forms of payment, it doesn’t make sense to continue using a coin that no one wants to use.
1. Estimated savings to the Canadian taxpayer of $10 million annually.
2. Less aggravation for consumers.
3. Higher Canadian business productivity.
Credit Cards Canada is a for-profit enterprise offering credit card choices and education to Canadians. We have no vested interest in the outcome of these recommendations, but we feel compelled to speak up on an issue that affects our customers and is in part precipitated by them.
Honorable Minister, we thank you for your attention to our submission and we trust that it will be helpful as you consider the future of the penny in Canada.
