PIN debit card interchange fees challenged

Interchange feesThe Canadian Federation of Independent Business is calling for a flat interchange fee if banks in Canada begin issuing PIN debit cards that run on the Visa and MasterCard networks. What will it mean to consumers if Visa and MasterCard issue debit cards that compete with Interac debit cards?

Right now, Interac is the main system that handles debit cards in Canada. This is the card that is issued by the majority of Canadian banks.

Interac payments are typically around 40 percent of the market share, with credit card payments comprising the other 60 percent. According to an employee at Central Hobbies in Burnaby, BC, merchants prefer to accept debit payments from customers, due to their reasonable merchant fees. The use of credit cards, which provide users with perks such as air miles rewards, result in higher transaction fees for the merchant.

Visa and MasterCard have both decided that it's time to compete with Interac, and wish to offer their own version of a debit card, which will run on their credit card network, not the Interac network.

According to the DigitalTransactions.net, "Canadian merchants worry that Visa- or MasterCard-branded debit cards would cost them more to accept than Interac cards."

Small businesses should indeed be concerned about what impact this debit card addition could have, especially when it comes to the additional costs involved. The Canadian Federation of Independent Business is lobbying for government regulation to control these fees, and to have Visa and MasterCard only charge a flat intercharge fee for each transaction.

"Consumers are unwitting dupes in new schemes by the credit card companies to raise merchants' fees," Catherine Swift, president and CEO of the Federation of Independent Business, told The Star.

The result could be a higher merchant charge, similar to what the credit card companies charge merchants now. Fees will ultimately be passed down to the consumer through raised costs for goods and services.

Currently, fees that Interac and credit card companies already charge are hidden from the consumer in the price of the goods and services they buy. Merchants aren't allowed to disclose these fees on receipts.

If the government decides to regulate the fees, this would mean that Visa and MasterCard would only be able to charge a flat fee per transaction. However, if they are allowed to continue with a fee percentage per transaction, they cannot stop Interac from changing their own fees to a percentage per transaction as well.

Without government intervention, the new debit cards from the credit card companies will result in higher fees being added to the many hidden fees that the average Canadian consumer already pays each year.

Written by Melanie Dixon.

Published July 24, 2009

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