It could get pricier to use your credit card.
In the wake of a recent class action settlement, Visa and Mastercard will give small businesses the power to add a surcharge on credit card transactions to offset credit card processing fees. This will officially take effect tomorrow (October 6) across the country. That is, with the exception of Quebec, due to existing consumer protection laws.
But, in an era of sky-high inflation and cash-strapped consumers, will this actually materialize?
According to a new survey by the Canadian Federation of Independent Business (CFIB), nearly one in five (19%) of small businesses are considering it. After all, not only are they dealing with the financial blow of the pandemic and its relentless lockdown measures, but also pricey processing fees.
"Most smaller merchants are still on the fence or don't plan to surcharge as they don't want to risk losing customers. However, it's important for them to know they will have this option," said Corinne Pohlmann, Senior Vice-President of National Affairs at CFIB. "Small businesses have long been dealing with expensive credit card processing fees and trying to find ways to absorb the cost of accepting premium cards without the ability to surcharge or refuse those cards. Surcharging gives them the ability to offset some of their costs and be transparent with their customers about the fees they pay."
The survey of CFIB members found that 19% of merchants intend to use the new power to surcharge, while a further 26% said they will do it if their competitors or suppliers do. More than one-third (40%) of small firms said they are not sure yet if they will surcharge, while 15% said they don't intend to do it.
Businesses that often sell to other businesses (B2B), like construction, manufacturing and finance/insurance, were most likely to report they will surcharge for credit card usage, while businesses that serve consumers were less likely to say they will do it. Among consumer-facing sectors, a total of 19% of hospitality (e.g. restaurants), 17% of personal services businesses (e.g. salons) and 12% of retailers intend to surcharge.
"These data reveal the frustration so many business owners feel about the high cost of credit card processing, which can eat about 1.5 to 2.5% of every sale," said CFIB president Dan Kelly. Currently, 35% encourage customers to use other forms of payment and 28% said they increase their prices to absorb credit card fees.
Of course, the alternative is for the government to reduce credit card processing fees. The CFIB is subsequently calling on the feds to deliver its 2021 election promise to further reduce ongoing credit card processing fees for small businesses. Furthermore, it says that Quebec should also gave the right to surcharge to offset their credit card fees.
"The power to surcharge will allow merchants to address their rising operating costs, push back against future credit card fee hikes, and keep their prices competitive," Kelly said. "With mounting pressures small businesses are facing due to inflation and government-imposed costs, surcharging is another way to reduce their cost burden."
Merchants can now apply to surcharge by registering their plans with their credit card processor and Mastercard (Visa requires registration with the processor only). Once they have registered their intent to surcharge, merchants must then wait 30 days before they can start to apply a surcharge on Visa and Mastercard transactions.
"All payment processors should be ready to support merchants interested in surcharging as soon as possible. If the processors aren't ready, CFIB is urging them to find a solution for merchants who wish to start surcharging," Pohlmann added.