02 Dec 22

Canada Credit Card Surcharges: Pros, Cons, and Solutions

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Canadian merchants, excluding those in Quebec, can now add a fee to payment card transactions. The surcharges stem from a 2021 class action lawsuit brought against Visa, Mastercard, and several banks by Canadian merchants who claimed credit card processing fees were a hardship for their businesses. The settlement allows surcharging to offset some payment processing costs, setting a cap of 2.4 percent.

The measure, which went into effect on October 6, 2022, requires merchants give at least 30 days’ notice to Visa, Mastercard, and their acquiring bank before introducing the addition of surcharging. So, as of November 2022, consumers may begin to see surcharges added at the checkout.  

While it’s worthy of note merchants now have the ability to introduce surcharging, there are various implementation hurdles with the credit surcharging decision. Specifically, acquirer host changes are necessary in addition to payment terminal software enhancements. Again, knowledgeable credible partnerships are key (as always) to execution success.

The Pros and Cons of Canada’s Credit Card Surcharges in an Era of Inflation

The effective date of Canada’s new credit card surcharges coincided with news of a 6.9 percent increase in the consumer price index (CPI) in September and the same growth in October. Prices for fuel, mortgage interest, and food costs continue to climb. The surcharge may be an unwelcome surprise to consumers who are becoming more budget-conscious by the day.

However, the credit card surcharge gives merchants a mechanism to cover payment processing fees. Inflation, which is having a significant impact on businesses as well as consumers, may find some relief by passing all or some of their payment processing fees on to their customers.

Merchants will need to make the decision of whether to surcharge or not to surcharge carefully, balancing the financial benefits to their businesses against any downside it would have for their customers and businesses.

Adapting Solutions in Response to Canada Credit Card Surcharges

Payment solutions providers can close the gap between what helps merchants operate profitably and what enhances consumer experiences. Opportunities include:

  • Card options

The lawsuit only named Visa and Mastercard, so credit cardholders may gravitate toward American Express. Although merchants cannot surcharge AmEx transactions, they may capture more business if they accept those cards.

  • Integrated loyalty

According to Statista, the average Canadian loyalty program member was enrolled in 13.4 rewards programs in 2021 and actively used 6.7. Some payment cards come with their own rewards that incent consumers to use them. However, merchants may find store loyalty rewards are more effective at bringing people back to the store. Loyalty program software integrated with the payment terminal makes it easy to manage and delivers the best experiences for consumers.

Further, there is an opportunity for consumers to avoid merchant surcharging costs by redeeming their loyalty points when making purchases. This can benefit both merchant and consumer by eliminating the surcharging topic and helping the merchant liquidate outstanding loyalty points (and those financial liabilities) while also increasing consumer goodwill.

Additionally, acquirers who work with a payments technology company with a Payments Platform as a Service (PPaaS) offering can provide their clients with a variety of loyalty program offerings via just one integration with the platform.

  • BNPL

Acquirers can also improve their competitive position by enabling merchants to accept buy now, pay later (BNPL) payments at the checkout. BNPL services that partner with a PPaaS provider can make it possible, meeting consumer demand for no-interest, no-surcharge alternatives to credit card payments.

  • Management software

Merchants who choose to apply surcharges will need an efficient way to manage and comply with regulations. Developers have the opportunity to augment and introduce software via automated broadcasting tools.

  • Discounts

Under the Code of Conduct for the Credit and Debit Card Industry in Canada, merchants can offer discounts to customers who use certain payment methods rather than surcharging. For example, they can incent cash use with a discount so they can reduce the amount of payment processing fees they pay. Merchants who discount must comply with regulations, such as clearly communicating information about the discounts with signage at the point of sale. Solutions providers can develop software to manage discounts compliantly.

The Canada Credit Card Surcharge Outlook

The Canadian Federation of Independent Business (CFIB) polled small businesses and found 19 percent are considering surcharging credit card transactions. An additional 26 percent will follow if their competitors or suppliers do.

The market surcharging change impacts a sizeable market looking for ways to recover and offset credit card processing fees while operating efficiently and providing the best possible customer experiences.

Contact Ingenico to learn about partnerships that can deliver these in-demand solutions.

Author

Greg Scott

Head of Sales

Ingenico North America

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