You gotta spend money, to spend money… is an accurate saying starting today, as businesses in Canada get the go-ahead to pass credit card processing fees onto customers.
What happened: A successful class-action lawsuit filed by Canadian merchants against Visa and Mastercard has officially ended a decades-long prohibition on surcharging.
- Transaction fees have become a major concern for businesses as credit card use surged by 1.5 billion more transactions annually in 2021 than in 2016.
Businesses that implement the new fees will likely charge between 1.4% and 2.4% (for cards with cash back or loyalty perks, which are more expensive to process) on purchases.
- The new rule is not applicable to Quebec businesses, as surcharging is barred there.
Why it matters: Visa and Mastercard’s market dominance has led to a solution that involves making small businesses responsible for passing on credit card fees to consumers.
- It’s a losing situation, with businesses having to choose between paying the fees, raising prices, or losing customers happy to take their plastics to other retailers.
- Just 20% of small businesses say they plan to add the surcharge right away, per the Canadian Federation of Independent Business (CFIB), and only 12% of retailers.
With corporations like Telus planning to implement the surcharges stat, it exposes how much power credit card companies really have, CFIB’s president told The Globe and Mail.
What’s next: Retailers might avoid new surcharges to save face, but they could be a hit with B2B sellers who are significantly more receptive to kicking the can to other businesses.