October 1, 2008
Recent statements by the Canadian Federation of Independent Business (CFIB) and the Retail Council of Canada (RCC) about credit and debit card transaction fees fail to tell the whole story and contain a number of errors and distortions.
Consumers do not pay credit and debit card transaction fees.
Consumers do not pay transaction fees for merchants’ credit and debit card processing any more than consumers directly pay merchants’ rent, staff wages or other operational costs. The CFIB and RCC have deliberately confused and combined references in their materials to merchant fees, which consumers do not pay, with fees that consumers may pay as part of their credit card agreements. Such deliberate muddying of the waters on the issues is misleading and disreputable.
The RCC and CFIB are attempting a cash grab from consumers.
By attempting to make merchant fees a political issue, the RCC and the CFIB are essentially calling upon politicians to intervene in commercial matters between private sector entities. In doing so, the RCC’s and CFIB’s intentions are to reduce the value of consumer rewards on payment card programs and pocket the windfall without passing along the savings to consumers.
When the Australian government mandated reductions in merchant fees at the request of retailers, the reductions were not passed on to consumers as lower prices, and cardholder features were significantly reduced because they could no longer be supported. For reasons like this, the U.S. Department of Justice has recommended against a similar proposal in the United States and noted that the Australian approach hurt consumers. In fact, the government in Australia is now considering reversing course.
Credit cards are vital for economic activity.
The credit card payment system provides a vital infrastructure for economic activity, facilitating more than $240 billion in retail transactions annually in Canada. Credit cards provide millions of consumers and businesses with access to credit and facilitate spending with Canada’s retailers.
Merchant fees are critical to the functioning of the credit card payment system. Restructuring the system by disrupting these fees as suggested by the RCC and CFIB will undermine its overall operation. It is particularly ill-advised to make such proposals during a time of economic uncertainty when retailers can ill-afford to see further impediments to consumer spending.
Merchants accept cards because of the value they represent.
In exchange for the enormous value provided, merchants do pay a fee for card acceptance. Merchants are not required to accept credit or debit cards, but choose to do so in increasing numbers. This is because card payments represent good value. Debit and credit cards represent convenient, secure, and globally recognized forms of payment that enable billions of dollars in commerce for Canadian retailers and independent businesses annually. Moreover, card payments are more cost-effective than handling cash or cheque.
In fact, many of the merchants served by the CFIB and the RCC work directly with MasterCard to create promotions that drive MasterCard traffic.Some of the benefits of accepting payment cards for merchants are:
- Increased Sales
Customers spend more when they are not constrained by cash on hand. As a result, it is not uncommon for merchants to see increased sales, especially purchases of higher-margin products and specialty items. This is particularly true among different segments of cardholders. Moreover, when customers are empowered by card payments they tend to frequent the same store more often.
- Customer Satisfaction
Customers appreciate retailers and independent businesses that allow them the flexibility to pay the way they want to pay – including by credit or debit card. Happier customers are more loyal customers.
- Improved Efficiency
Card transactions today are conducted electronically. These paperless payments can save time and money by minimizing cash handling and payment reconciliation, giving the merchant more time to do more important things – like managing and growing their business.
- Increased Safety
With lower volumes of cash, merchants are less vulnerable to theft and pilfering.
- Currency Convenience
Credit cards are settled in the currency in which merchants sell their goods and services, regardless of where the cardholder is from.
- International Customers
MasterCard and other major card brands represent access to millions of international customers who otherwise would be unable to exercise their purchasing power when visiting Canadian retailers and independent businesses.
- Payments Innovation
MasterCard and its financial institution customers have introduced innovations that have been embraced by merchants. For example, contactless payments like PayPass® have revolutionized through-put and convenience for merchants and cardholders. MasterCard is the contactless payments leader in Canada, and Canada enjoys an extraordinarily high level of contactless penetration among merchants and cardholders, which is a testament to the Canadian appetite for innovation.
- Infrastructure Investment
Merchants enjoy the seen and unseen benefits of the substantial investment made by MasterCard and its financial institution customers in ever faster, more reliable, and more secure payments.
- Speedier Checkout
Merchants are able to speed their customers through checkout with rapid card payments. No more counting change, and no one wants a return to waiting while customers write cheques.
- Payment Guarantee
When a merchant accepts an authorized card payment, it does not have to manage or worry about the creditworthiness of the cardholder, chasing receivables, or insufficient funds.
Merchant fees are not “skyrocketing”, and some have come down.
Just as retailers and independent businesses adjust prices from time to time in response to various market circumstances, card fees require adjustment as well. The recent adjustments to merchant fees for consumer cards are the first in seven years, and not all of the recent adjustments resulted in increased cost to the merchant. In fact, many of the adjustments will reduce merchant fees. It is therefore inaccurate for the RCC and CFIB to characterize merchant fees as “skyrocketing”.
Consumers prefer card payments.
Nearly sixty-five percent of Canadian consumers’ spending is done on payment cards. This is because credit and debit cards represent value to consumers. For MasterCard cardholders, the benefits that drive this preference include:
- Zero Liability
Consumers enjoy the confidence that they are not liable for unauthorized transactions on their MasterCard cards. When fraudulent transactions do occur, the loss is recoverable. This is not the case with cash, and difficult with cheques.
- Chargeback Protection
When a consumer does not receive goods or services paid for, with MasterCard they have the power of chargeback protection on their side. Recently, cardholders who charged their Zoom Airlines tickets on their MasterCard cards had recourse through chargeback protection. Consumers who paid with cash or cheque did not enjoy this benefit.
- Global Acceptance
MasterCard cardholders enjoy unparalleled acceptance in 210 countries and territories at over 27 million merchant locations regardless of where and by what financial institution their cards were issued. This power represents an enormous advance in personal autonomy and has democratized travel for all. It also enables consumers to make purchases wherever and whenever they want, including on the Internet.
- Rewards and Benefits
Canadian consumers have become some of the most sophisticated consumers of payment card rewards and benefits in the world. These programs are promoted by merchants under co-brand programs designed to deliver incremental value to their customers and thereby engender customer loyalty. Consumers using these co-brand programs tend to spend more and more frequently at the same merchant as a way of maximizing the benefits they receive from their card. Card issuers pay their merchant co-brand partners for these benefits using merchant fees they receive.
Debit competition will benefit merchants and consumers.
Both the RCC’s and the CFIB’s statements criticize the possibility of introducing competition to challenge the current debit monopolist in Canada. Their statements are founded on rumour and speculation at best or a complete lack of information at worst. It is premature and irresponsible for anyone to incite fears that are unfounded. In the past both the CFIB and the RCC have consistently argued that open markets and competition promote increased choice, innovation, and competitive prices. MasterCard agrees.
We question how anyone could see a lack of competition in the debit arena as a positive for merchants or consumers, and are particularly surprised by such statements coming from these organizations. MasterCard operates a leading global debit network and has offered debit payments in more than 100 countries for many years under the Maestro and MasterCard brands. Already, including in Canada, MasterCard’s Cirrus network provides unparalleled access to cash through its ABM network. MasterCard’s debit products provide their merchants and cardholders with significant advantages, including a global and secure debit network that allows cardholders to pay with debit internationally and merchants access to over 660 million cardholders worldwide.
About MasterCard Worldwide.
MasterCard Worldwide advances global commerce by providing a critical economic link between financial institutions, businesses, cardholders, and merchants worldwide. As a franchisor, processor, and advisor, MasterCard develops and markets payment solutions, processes close to 18 billion payments each year, and provides industry-leading analysis and consulting services to financial institutions, customers, and merchants. Through its family of brands, including MasterCard®, Maestro®, and Cirrus®, MasterCard Worldwide serves consumers and businesses in more than 210 countries and territories. For more information, go to www.mastercard.com.