The real costs of that card in your wallet

Great article from the Financial Post.

Dan Kelly  Oct 3, 2011 – 10:15 AM ET | Last Updated: Oct 3, 2011 10:17 AM ET

Walk through an airport or watch your favourite televsion show and you’ll undoubtedly come across ads and offers for credit cards promising points toward a dream vacation, cash back or extra insurance. Some cards promise you a free trip just for signing the card and making your first purchase. But have you ever wondered how all these benefits are possible? Is it the annual card fee that pays for the points? Are the perks financed through the sky-high interest costs consumers pay when they carry a balance from month to month?

Few consumers realize that it is the merchant who swipes your card that carries the burden of most of the costs. The Competition Bureau has said that credit cards issued by Canadian banks carry among the highest merchant fees in the world, averaging 1.5% to 3% of the sale. Fees were made worse in recent years when Visa and MasterCard issued new, higher-merchant-fee cards to compete with costly American Express cards. Banks pumped out these premium cards by the thousands, each carrying 30%, 40% or sometimes more than 50% higher costs for the merchant to accept.

The Canadian Federation of Independent Business has tackled this issue for the past few years and made great strides in helping bring some stability to what was a Wild West of bad practices by credit card companies and some banks.


CFIB credits Federal Finance Minister Jim Flaherty for helping small businesses gain some clout in this marketplace when he moved on its recommendation for a voluntary Code of Conduct for the Credit and Debit Card Industry. Among its many accomplishments, the code saved Canada’s low cost, flat fee system of debit with our home-grown Interac system and mandated improved practices and information for small companies related to credit card merchant fees.

But even with this improved information, it remained virtually impossible for any business owner, store clerk or consumer to understand which card would cost what fee. That is until we at the CFIB started asking some tough questions and demanded additional data to help understand the costs associated with every card in the country. The good news is, with the co-operation of Visa and MasterCard, CFIB produced a list of more than 200 cards issued by Canadian banks outlining which cards carry regular fees and which ones cost small companies more to accept.

Take this test. Which MasterCard do you think would cost more to accept: a) President’s Choice MasterCard or b) Capital One Cash Back Gold MasterCard? For Visa, which is more costly: a) Royal Bank Visa Infinite Avion or b) CIBC Aerogold Visa? If you answered a) for each, then you did better than the merchants CFIB tested in a short telephone survey.

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