Next time you are at your favourite small business you may notice a sign asking you to pay cash or use your debit card.
You’ll find one of those signs at Cake & Loaf bakery on Dundurn Street South.
Bakery co-owner Josie Rudderham said that as a consumer she didn’t realize the impact credit card use had on a small business.
“It’s about $300 in an average month for us to pay for transaction fees,” she said. “That’s $300 that could have gone to employees, training, equipment, and it’s a big deal for small businesses.”
Canadian Federation of Independent Business president Dan Kelly says a consumer alert campaign aims to help consumers understand how significant the new fees are to small business owners.
Using a credit card may be convenient, but the fees for each transaction end up costing a lot to small business owners, he said.
“We have little signs that many merchants are starting to put up in their businesses that say, ‘Would you consider paying with cash or debit?’” Kelly said. “It’s encouraging consumers and giving them a little narrative that you may not know. Anything that can be done to help consumers understand that if they pull out their credit card, especially a premium credit card, they’re imposing higher costs to the system.”
Depending on the credit card used, the base rate is around two per cent, Rudderham explained.
“If anyone is using a premium card, let’s say a PC card that you get points on or a travel Visa, or RBC points, businesses actually have to pay for the points,” she said. “We get a percentage added onto our costs to pay for those points, which can be another two to three per cent on top of the two per cent we already pay (for the initial transaction).”
An example Rudderham used was the purchase of a coffee.
A $2 cup of coffee would incur an additional 10 cents for the transaction fee, she pointed out.
“It’s a cost that we have to pass on to the consumers because we really don’t have a choice,” said Rudderham. “It’s an illusion for many that they’re getting all these points when they use their credit cards and it’s not costing them anything – but it has to be passed down to the consumer at some point. That’s something we really struggle with because I’m not going to add it to your bill just because you used a credit card.”
Kelly said fees like this are crippling for small businesses because merchants have limited options.
An increase in Visa and MasterCard fees is another reason for the campaign, he added.
“Larger merchants have bigger bargaining power so they can negotiate lower rates for all sorts of supplies,” said Kelly. “A small merchant has a narrower margin even if the fees are largely in the same category, whether you are from a large or small business.”
Though there are benefits to using a credit card, Kelly noted interact debit cards offer the same amount of security but at a much lower cost.
“There are benefits to using credit cards and merchants don’t have a problem accepting them, but the fees are driving merchants crazy right now,” he said.
Visa Canada Corporation announced last fall it would implement a pricing adjustment to take effect April 2013 for banks used by business owners in Canada.
The fee is an increase of two cents for every $100, or 0.02 per cent, which is the first increase in five years.
However, Visa Canada noted it is up to the bank to decide how much of the increase to pass on to its customers.
If a merchant currently pays a merchant discount rate (MDR) of two per cent, it would see a rate increase to 2.02 per cent. “The MDR rate is negotiated directly between acquirers (banks) and merchants,” Visa Canada said.
MasterCard International Incorporated also announced a smaller fee hike would go into effect next year.
Originally posted in Your Hamilton Biz.