Credit Crunch: How Credit Card Fees can Cripple Businesses

Businesses that accept credit cards are faced with expensive fees and stiff regulations

By Khristopher Reardon, Staff Writer

via money.howstuffworks.com

You are walking down the street and you decide to tuck into a local shop for a bit of the usual. Whether it’s a bakery, a coffee shop or any number of other kinds of business, you feel good; you’re a patron to a recognized community business and you’re helping out the local economy.

You approach the register with the purchase, and fingers clack over keys. “And how will you be paying?”

“I’ll put it on my credit card,” you say.

There is a small sigh, the clerk takes the credit card and runs it through the machine.

Credit cards give less money to the local entrepreneur, and give a percentage of the total sale to the bank.

[pullquote]Businesses are prohibited from surcharging customers to recoup the costs of the crediting system.[/pullquote]Credit card charges in Canada range between %1.5 and %3 of the total sale, double that of many other countries.

This means local businesses that accept credit cards could see hundreds, maybe thousands of dollars go out to credit card companies and banks each month.

The Canadian Federation of Independent Business (CFIB) says this means less money goes out to employees.

This issue has become a great concern to CFIB, enough for them to step up, and try to equip their 108,000 member businesses with signs encouraging customers to pay with debit or cash.

On top of that, businesses are prohibited from surcharging customers to recoup the costs of the crediting system.

Business owners are also not allowed to show any discrimination against credit card types, including premium cards with rewards that are more expensive for small business owners.

The end effect is that business owners, who accept credit cards, must accept all credit cards regardless of the personal costs it will affect.

Competition Bureau Canada’s website had stated a challenge to Visa in what they called restrictive rules, which resulted in increased costs for merchants who accepted their credit cards in December 2010.

They made the example that a $400 set of snow tires with 3% of hidden credit card fees will run the business about $12 to process the card. If a debit card is used for the same purchase, the fee would be 12 cents.


So when mom and pop are looking across the counter, it might be worth it to whip out a few bills rather than some plastic when you’re at a local shop. Paying with regular cash instead of credit could make a little positive change for local businesses. 

ARB Team
Arbitrage Magazine
Business News with BITE.

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