Should Visa & Mastercard Allow Merchants to Surcharge on Credit Card Transactions?

On December 15, 2010, the Competition Bureau in Ottawa launched a lawsuit against credit card giants, Visa Canada Corp. And MasterCard International Inc. to argue the credit cards’ company’s policies on preventing merchants from surcharging and enforcing their “honour all cards” policies.  The Bureau alleges that these policies are anti-competitive and hurt both consumers and merchants as they drive up costs at the cash registers.

Currently, both Visa and MasterCard have policies in place that dictate merchant are not able to surcharge on transactions charged on credit cards.  On top of that, they also have a “honour all cards” policy in place which enforces that if a merchant chooses to accept Visa and MasterCard, they must accept their entire suit of products, including their premium card line which carry higher interchange fees.

Visa and MasterCard currently control the bulk of the credit card transactions in Canada, up to 85 percent of all credit card transactions and their fees to merchants are charged in the form of merchant discount rates.  The fees in Canada have been reported to be nearly twice as higher as those in other countries such as Australia, New Zealand and Europe… countries that have made surcharging against the law.

Competition Commissioner, Melanie Aiken states in a press release yesterday “Visa and MasterCard’s anti-competitive behaviour hurts both businesses and consumers alike.”  This announcement falls in line with the voluntary Code of Conduct created to help protect merchants from the fees that these credit card companies currently charge.  The Code, which came into effect only 4 months ago, has been criticized as “lacking teeth”.  This move clearly enforces the bureau’s aggressive new target on eliminating anti competitive behaviour.

The Bureau believes that by allowing surcharging on premium cards is the most effective way to foster fair competition in the industry with respect to fees.  Consumers choose to use these premium cards because of the lucrative benefits, such as travel points, associated with them.  Merchants should not be the ones left paying for these benefits cardholders enjoy.

Both Visa and MasterCard responded with formal announcement that they intend to fight against this lawsuit and are “disappointed” with the Bureau’s decision to move forward.  They believe their policies are pro-consumer and by making this movement, the consumer will ultimately be punished for choosing to use their card.

Visa states in a press release yesterday “Visa’s no surcharging protection was created specifically to shield consumers from retailers who seek to impose checkout fees and penalize consumers who choose the convenience, security and reliability of Visa over cash and cheques.  Merchants already have numerous options available to help manage costs, while receiving all the benefits of electronic payments.”  By this, Visa refers to the fact that they do not preclude merchants from offering incentives to those consumers who choose to pay by another form of payment.  Visa also points out that in the few countries that do allow surcharging, they have seen merchants charging more than the cost of processing their premium cards, which turns this practice into a profit making endeavour for those large merchants.

MasterCard mirrors these sentiments with a quote from the newly appointed president of MasterCard Canada, Betty DeVita “If these changes were implemented by the competition Bureau, the result would be to enrich merchants at the expense of consumers”.

The Competition Commissioners aggressive attacks against anti competition have already been felt in other industries with similar lawsuits in real estate and telecommunications.  It would appear that finally, the smaller merchant could have a voice on their side to fight against the large credit card companies.

What are your thoughts on credit card transactions having a potential surcharge…?

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