Senator Pierrette Ringuette

Retailers feel 'gouged' by credit card companies

When the Retail Association of Canada decided it was time to take the gloves off against the credit-card industry over high fees, it adopted a feisty attitude.

It assembled a group of the like-minded.

Interest groups - such as the Tourism Industry Association of Canada - representing 120,000 Canadian businesses signed up.

And they called their group the StopStickingItToUs Coalition.

Canada's retailers, tourism operators, restaurateurs and others have long groused about the charges they have to pay so their customers can pay with credit cards.

Then in the past year, changes introduced by the country's credit-card giants - Visa and Mastercard - provoked the fresh backlash that became the coalition.

Retailers' chief complaint is easily summarized and has politicians taking notice.

"They feel they are being gouged," said Peter Woolford, a vice-president of policy with the Retail Council.

Senator Pierrette Ringuette, a Liberal from Edmundston, hopes to persuade the Senate banking, trade and commerce committee to examine practices in the credit-card industry.

She plans to table a motion to that end, likely later this month.

"We think it would be a very helpful first step," said Woolford.

NDP leader Jack Layton also raised the issue in the fall campaign, while Alberta's premier referred to it in his letter pitching ideas to Finance Minister Jim Flaherty in advance of the Jan. 27 federal budget.

Two changes triggered much of the current concern.

Last spring, the rates that retailers pay to have each credit-card transaction processed were restructured for the first time in decades.

High-volume grocery chains and gas stations got a break; many sellers of general merchandise ended up paying more but getting nothing extra in return.

The credit-card companies wanted to build market share in groceries and gas, where customers had been paying mostly with debit cards, said Woolford.

But asking others to pay more smarted ,despite reassurances the restructuring wasn't leading to a higher effective rate.

"It isn't revenue-neutral to me if I have a hardware store and the rates have gone up for me and I'm getting nothing in return," said Woolford.

And about six months ago, the credit-card companies began aggressively marketing a new product - an exclusive premium card for high-earning, high- spending customers.

Cardholders benefit because of the enticing benefits and cachet that go with the cards.

The credit-card companies benefit because of higher revenue.

The catch for merchants was that they're providing much of that revenue by being forced to pay a somewhat higher processing fee - with nothing in return, said Woolford.

He said retailers were initially assured only a small portion of sales would be to holders of premium cards "but most of our members have found they now account for over 20 per cent of all transactions and the volume leapt in just two to three months.

"That was an enormous increase in their costs and completely unjustified.

"To the retailer, it was the same customer with the same income buying the same product as before - but now all of a sudden it cost the retailer more."

Together, the changes fuelled a long-standing frustration - be it oversimplified or not. Many retailers see themselves as the little guys without much clout when dealing with sophisticated multinational firms with revenues in the billions and a virtual lock on the market. Combined, Visa and Mastercard account for 80 per cent of the credit cards issued in Canada.

Despite that dominance, the Canadian Bankers Association and the credit card industry contend that there is enough competition among card issuers to provide consumers with plenty of choice.

Retailers can also negotiate their fee structure with the firm they choose to process transactions.

But Woolford said that, like nearly two dozen other countries that have begun to initiate reviews or take action on credit-card rates and practices, it's time for Canada to do so.

"We think the ultimate outcome should be considerably more transparency in the setting of rates - and we believe that market conditions would justify a much lower rate than we're paying today."