Mon, Oct 20, 2008 12:00 AM EST
[source: Ottawa Business Journal]
Local retailers call for regulation to halt shrinking bottom lines
A coalition of businesses fed up with rising credit card interchange fees has launched a complaint with the federal government’s independent Competition Bureau, said a representative from the Canadian Federation of Independent Business (CFIB).
Garth Whyte, executive vice-president of the Ottawa-based association, said Visa and MasterCard – who control 80 per cent of the Canada’s credit card market – sent out concurrent notices alerting merchants to fee hikes in June and then again this month.
“There’s been simultaneous increases in both Visa and MasterCard charges, (so) we lodged a formal complaint because Visa and MasterCard have a duopoly,” Mr. Whyte said.
“We think we should investigate whether these increases were an arrangement or were pure coincidence. But it’s happened again in October for both of them.”
The extent of the overall percentage rise in interchange fees – an unregulated cost paid by retailers every time a consumer uses a credit card in a store – is unclear due to the number of different types of credit cards affected, each with their own rates attached to them.
But the CFIB said its members have been paying far more to credit card companies than earlier this year – particularly for premium cards offering shopping rewards.
The Retail Council of Canada (RCC) has estimated the average interchange fee in Canada is two per cent. Australia, which regulates its fees, sits at 0.45 per cent. The U.S., which has a regulatory bill before Congress, is at 1.75 per cent.
As a result, some retailers have said they simply can’t stomach the increase – a single Quickie Convenience Stores outlet saw its fees jump from $60,000 last year to $98,000 this year, according to a company official.
Chris Wilcox, general manager of the Ottawa-based convenience store chain, speculated merchants may have to take the radical step of not accepting credit cards.
“That’s the only way we can have any action on this: to have a protest, stop accepting these cards, to get some attention. Whether or not that happens, we’ll see,” he said. “We’re concerned, and quite worried about this. Canada is one of the few countries in the world that doesn’t regulate this sort of stuff.”
Marilyne Nahum, an official at the Competition Bureau, said she was unable to discuss the grievance.
“We actually conduct our investigations in private, so I can’t confirm whether or not we received a complaint about the issue,” she said.
MasterCard refused comment except to point to an Oct. 1 press release on its website. “The RCC and CFIB are attempting a cash grab from consumers,” the statement read. “By attempting to make merchant fees an election issue, the RCC and the CFIB are essentially calling upon politicians to intervene in commercial matters between private-sector entities.”
“It is important to note that Visa Canada’s effective interchange rates have remained flat for 35 years,” read a similar statement from Visa, dated Oct. 6.
Indeed, faced with the ongoing credit crunch, credit card companies could have to increase fees simply to maintain profits – just like any other business, pointed out Elizabeth Evans, director of the Ted Rogers School of Retail Management at Ryerson University.
At the same time, she cautioned, retailers in Canada have to be competitive with other countries. “Like many things in the Canadian business structure, our costs are higher than they are globally in many instances,” she said.
“This current economic crisis is bringing this home more than (anything else) possibly could. How we do our businesses here is not the only thing that influences our outcomes.”
RCC agreed merchants are facing “desperate times,” but added they aren’t in favour of a credit card strike. The council said it’s in discussions to persuade MPs to clamp down on fee hikes.
“The challenge is we have so many diverse retailers,” said Derek Nighbor, the council’s senior vice-president of national affairs.
“If a retailer is depending on the biggest chunk on their business from credit cards – as many are – it could be difficult financially for some merchants or retailers to (protest). . . The effectiveness of that kind of a campaign in other countries has not been successful because you need everyone to hang together.”
He added that premium cards can physically look the same but have different rates attached, all depending on the customer.
“This is a consumer issue,” he said. “This is affecting prices in Canada at a time when retailers are fighting to keep prices competitive.”