Saturday, 10 September 2011

The hidden cost of premium credit cards


Not all reward point credit cards are created equal.
Some come with hefty interest rates or annual fees, while others cost business owners a small fortune in hidden transaction fees.
New data collected by the Canadian Federation of Independent Business, and shared first with QMI Agency, lists merchant fees for dozens of cards from Visa, MasterCard, American Express, Canadian Tire, President’s Choice and more.
Until now, it’s been difficult for small shop owners to know exactly what they are paying for the chance to do business with various credit card holders. To the naked eye, many premium credit cards are virtually indistinguishable from regular credit cards.
Premium cards don’t come with a warning to business owners, said Dan Kelly, CFIB’s senior vice-president of legislative affairs.
“How could an individual small-business owner hope to understand what is passing through his or her machine?” Kelly said.
Canadians are eager to swipe plastic in exchange for everything from travel miles to free groceries. Studies have shown Canadians collect and redeem more points than their American counterparts.
With a little digging, cardholders can easily compare interest rates and fees associated with premium cards.
The same cannot be said for business owners who want to know the cost of accepting those cards.
CFIB member merchants, for instance, pay credit-card giants Visa and MasterCard between 1.65% and 1.75% to accept basic cards.
Premium cards however costs CFIB business owners anywhere between 1.75% and 2.71%. Interchange rates on American Express cards are even higher.
On a $120 cut and highlights at a typical hair salon that’s an extra $3.25 out of the shop owner’s pocket.
Some so-called “high spend” premium cards charge merchants even higher fees when the shopper exceeds a certain income or spending level.
“That just makes no sense to a merchant,” Kelly said.
But affluent, premium cardholders are the most valuable customers for retailers, said Don Lebeuf, an executive at MasterCard Canada.
“These people will spend 47% more per transaction (on average) than regular cardholders.”
“That’s why there’s a different fee associated with premium cards,” he said, adding that premium cards represent less than 5% of MasterCard’s Canadian client base.
Still, MasterCard values transparency and that’s why the company plans to re-brand its premium cards starting next year, Lebeuf said.
Premium cards are also subject to added fees tacked on by payment companies like Chase Paymentech and Moneris.
“Everybody’s got their hand in the cookie jar and the cookie jar is the small business owner,” Kelly said.
Most cards with “gold” or “platinum” in their name are actually regular cost cards.
Whereas President’s Choice MasterCard, marketed as a budget-friendly card to consumers, charges merchants 2.5% of the purchase price in fees to accept the card.
It’s confusing, Kelly said.
A consumer collecting Aeroplan points with a CIBC Aerogold Infinite Visa can cause a merchant to pay 30% more in fees than one collecting Aeroplan points with a CIBC Aerogold Visa.
“The good news is that there are dozens of credit cards out there offering consumers points without imposing sky-high fees on smaller merchants,” Kelly said.
The TD Platinum Travel Visa and the ATB Gold Cash Back MasterCard for instance don’t impose higher rates on merchants and still provide consumer perks.
Kelly hopes Canadians will check the card in their wallets against the CFIB’s new list of fees to merchants.
“In addition to helping your local entrepreneurs, you’ll be helping keep consumer prices down for us all,” he said.
Some CFIB member business owners have posted in-store signage encouraging shoppers to pay using lower cost methods such as cash and debit.
While high-cost corporate cards have been around forever, banks have only really begun pumping out premium credit cards to everyday consumers over the last two years, Kelly said.
The Competition Bureau is fighting Visa and MasterCard’s policy of forcing merchants to accept premium cards if they accept regular cards by the same brand.
The complaint was filed at the Competition Tribunal after the federal government’s Voluntary Code of Conduct for the Credit and Debit Card Industry dropped the option from its final draft.
LeBeuf said MasterCard does not support changes that would allow retailers to accept some of its products but not others.
“That flies against our core value proposition to consumers that you can use your MasterCard at any one of the 25 million merchant locations around the globe,” he said.


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