PIN the Blame on the Dynamic Duo(poly)

Consumers, merchants take aim at high rates and fees - Steve Arnold - The Hamilton Spectator

Canadians have always had a love-hate relationship with their credit cards, but in recent months there has been a lot more hate than love as consumers and businesses bristle at the way they feel abused by credit card issuers.

At the top of that list are sudden and drastic increases in interest rates and service charges, especially "hidden fees" paid by merchants who accept cards -- fees that end up being figured into the cost of a restaurant meal, CD or new suit.  Reaction to those moves has sparked an Internet campaign led by the Retail Council of Canada called StopStickingItToUs.com .

Consumer anger about high interest rates -- up to 28.8 per cent in some cases -- and fees for everything from cash advances to foreign currency transactions has been well publicized. Less known are the "back office" fees that drain billions from hard-pressed merchants.

Peter Woolford, vice-president for policy development and research at the Retail Council, says that's allowed to go on because two massive companies dominate the market and use that bulk to gouge their customers.

"Credit cards remain an effective and efficient way of paying for goods, but there are problems," he said. "In Canada we have a duopoly in place that's taking advantage of its dominance to gouge us.

"We've been hit with a whole series of measures that have quite substantially increased the fees merchants have to pay," he added. "They very clearly are not listening to us."

The credit card market in Canada is utterly dominated by Visa and MasterCard. Between them they control 80 per cent of the business -- 68.2 million credit cards used to purchase $267 billion of goods and services in 2008. In 2007 there were 64.1 million cards in use.

It's a profitable business. Very profitable. For 2008, Visa International reported global earnings of $1.7 billion US from processing payments of $2.7 trillion. In its earnings news release, the company stated its profit growth was "driven by strong contributions from service fees, data processing fees, and international transaction fees."  In the fourth quarter alone those fees amounted to $788 million, up 8 per cent over the prior year. Data processing fees rose 18 per cent, to $548 million, and international transaction fees were up 45 per cent.  For 2008, MasterCard International reported a net profit of almost $1.1 billion on revenue of $4.06 billion.

Those fees are the focus of the Retail Council's campaign demonizing "big credit card companies" that bled $4.5 billion from consumers in 2007 to cover "lavish incentive programs and corporate credit card benefits, even if you don't have one."

In industry jargon it's called the interchange fee, a levy of up to 3 per cent of the sale that's supposed to cover the cost of processing the transaction. Trouble is, according to the StopStickingItToUs campaign, only 13 per cent of what's collected actually goes to cover processing costs. More than 40 per cent goes to the cost of credit card reward programs such as Air Miles.

Restaurateurs Ron and Leanne Ciancone, of the Ancaster Old Mill and Spencer's in Burlington, figure 90 per cent of the business in their dining rooms is paid with credit cards. The fees for these transactions take as much as $170,000 a year off their profit statements.

"The credit card companies can do that to you. It's all about how much power they have," he said. "Nobody seems too interested in doing anything about it."  "In some of these cases the credit card company is making more on a purchase than the merchant, and for no added value other than a way to pay," she said.

Editor's Note: HATM can help online retailers cut their Interchange Fees by up to 100 basis points while providing an exponentially more secure payment environment for your online shoppers.  Contact us to find out how to bring online debit to online shopping.

Related Stories from the PIN Payments Blog

PIN Debit Payments Blog: Use PIN to "Start Sticking It To Them"  Sep 12, 2008

If retailers, specifically Internet Retailers, truly want V/MC to "stop sticking it to them," they should be organizing a push for PIN debit and the lower fees and higher security it brings to the table. ...

PIN Debit Payments Blog: Canada Keeps Fighting to Change InterchangeOct 17, 2008

Editor's Note: This is the third time I've posted about Retail Council of Canada's "Stop Sticking itTo Us" campaign. They certainly are an incessant group getting a lot ofpublicity for their cause. Here's the latest attack on V/MC as ...

It's Global Warfare Against Visa/MasterCardNov 06, 2008

Credit-card companies 'sticking itto' Canadians with high fees, retailers say; EU to Allow DebitInterchange For Now - ETA; Canada Keeps Fighting to Change Interchange;Use a PIN to "Stop Sticking It To Us"... Update on HR 5546 ...

Canadien Retailers Getting Riled by Interchange Sep 24, 2008

In it, I mentioned that if all these organizations made the same effort to have their customers use PIN Debit, they would stop sticking it to themselves. Maybe HomeATM can start a coalition with Internet Retailers and their associations ...