CFIG, CFIB critical of MasterCard's plan to increase transaction fees

If a fee falls on a florist – or an independent grocer – does anybody care? Small business advocacy groups including the Canadian Federation of Independent Grocers and Canadian Federation of Independent Business sure hope so.

They are among the industry groups speaking out against a recent decision by MasterCard Canada to raise transaction fees for small merchants by 20 per cent effective July 1, calling it “punitive” and accusing the company of gouging its customers.

Gary Sands, vice-president of the Toronto-based CFIG, said the fee hikes would eat into the grocery industry’s profit margins, which are already among the slimmest in the retail sector at between 1 and 2 per cent.

Commonly known as “swipe fees,” these charges are levied on every transaction made with a credit card. In Canada the fees typically range from 2 per cent to 3.5 per cent – among the highest in the world – and are divided between credit card companies, banks and payment processing companies.

In a Jan. 7 letter to MasterCard Canada president Betty K. DeVita, Sands said that a fee hike at a time when the food industry is being buffeted by rising costs is “inopportune,” and warned that it could place many of its members in an “uncompetitive situation.”

Sands also warned that CFIG members could ultimately be forced to pass on any additional costs to consumers, a fear echoed by CFIB president and CEO Dan Kelly.

“You don’t have to be a rocket scientist to know that some part of that, if not most of it, is going to have to be passed on to the consumer because you can’t make a living on margins of 1-2 per cent and have those kind of increases,” he said.

The CFIG plans to voice its “strong opposition” to the fee increase – which follows on the heels of a similar increase by MasterCard rival Visa set to take effect April 1 – to the Harper government and the Competition Bureau.

Sands called the timing of the announcing odd, since a decision from Canada’s Competition Tribunal potentially allowing merchants to add surcharges for accepting credit cards, or enabling merchants to refuse to accept certain premium cards is expected any day.

“We’re feeling optimistic that we may get one of these two powers,” said Kelly, noting a recent U.S. legal battle in which banks and the two credit card giants agreed to repay US$7.2 billion to approximately 8 million merchants. The settlement also enables merchants to levy an additional fee on credit card transactions.

“I’m less optimistic about the right to refuse cards, but I’m feeling somewhat optimistic that the tribunal may render a decision that suggests merchants will be allowed to levy surcharges,” said Kelly.

While he speculated that many independent merchants would be unwilling to levy the charge because they would be “deathly afraid” of discouraging a customer at the point-of-purchase, Kelly said that empowering them to do so may be enough to cause behavioural changes by credit card companies.

Kelly said that where consumers once paid for groceries using either cash or cheque, credit card companies have shrewdly positioned their products as a viable payment option. Their use has been exacerbated further by the introduction of rewards programs.

“Credit cards were viewed as being for larger purchases, not for daily expenses, and that taboo has been broken for some time,” he said. “Credit cards are absolutely commonplace in the grocery sector.”

Kelly said one possible solution for grocery retailers is to encourage the use of debit at the checkout. Sands, meanwhile, suggested a need for groups to partner with companies like Interac to develop programs that would reward customers for using their debit card to pay for everyday items like groceries.