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The Resource for the Global Finance Profession

Are Card Acceptance Fees a Threat to Canadian Competition?

  • By Andrew Deichler
  • Published: 2012-05-10

Canada’s Competition Bureau brought its case against Visa and MasterCard before the Competition Tribunal this week, accusing the card issuers of anti-competitive practices.

In December 2010, the Competition Bureau filed an application with the Competition Tribunal to strike down “restrictive and anti-competitive rules” that the card networks impose on merchants. Kent Thomson, the lead counsel for the Bureau, told the Competition Tribunal that these rules have eliminated competition in the market and led to higher costs for both merchants and consumers.

Canadian merchants pay some of the highest credit card fees in the world, ranging from 1.5 percent to 3 percent per purchase. They pay approximately $5 billion in fees annually.

Melanie Aitken, Commissioner of Competition, said in a statement that the rules have “handcuffed” small and medium-sized businesses in Canada. “Without changes to the rules, merchants will continue to face high costs for accepting credit cards, and all consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices,” she added.

The Competition Bureau launched an investigation into the credit card networks in 2009, following complaints by merchants.

Visa’s and MasterCard’s rules prohibit merchants from encouraging customers to use different cards or payment methods. They also require merchants to accept all cards from a specific network, including premium reward cards, and prohibit merchants from charging fees on purchases made using Visa or MasterCard products.

At the heart of the debate are the premium cards and the higher acceptance fees they carry. Since merchants cannot surcharge customers when these cards are used, they make up the cost by increasing the prices of their products.

For these reasons, the Competition Bureau believes the Competition Tribunal should abolish Visa’s and MasterCard’s rules. According to Section 76 of the Competition Act, the Tribunal can “prohibit an agreement or contract that influences prices upwards or discourages the reduction of prices.”

Visa and MasterCard processed more than 92 percent of all credit card transactions by Canadian consumers in 2011, representing more than $322 billion in purchases.

The debate over card acceptance fees in Canada heated up during a session last summer at the AFPC Treasury Management Forum in Toronto. Diane Brisebois, CAE, President and CEO of the Retail Council of Canada (RCC), stressed that merchants are concerned that premium cards will eventually dominate the market, and they do not believe they should have to cover the higher fees that come with those cards.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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