How to avoid the new credit card processing fees

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Q: I’ve heard on the news that anyone who accepts credit cards as a form of payment might be charged additional fees. Since the cost of living was already so high, I hoped that wouldn’t happen. But I got a message from my cell phone provider that they would charge me a small percentage if I paid with my Visa card. While the fee for me is less than $2 a month right now, it will quickly add up if everyone is charging me. What can I do? ~Roger

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A: Merchants are charged a fee when their customers pay by credit card. The credit card processing fee is called the interbank fee and is a percentage of the purchase amount. The amount of the fee also varies depending on the type of card used; the more perks for the cardholder, the higher the fee for the merchant.

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In the past, retailers were forced to bear these fees as a cost of doing business and were forbidden from passing them on to their customers. Earlier this year, a change was made to the agreements between retailers and Visa, MasterCard and other credit card companies. Starting this fall, companies can now pass these fees on to their customers.

Where do credit card processing fees come from?

If these surcharges just sound like another cash grab to you, it may help to understand where credit card processing fees come from. To do this we must take a step back; Canadians love their bonus cards. Whether it’s cashback, points for merchandise or travel rewards, Canadian consumers are loyal collectors. However, while you work toward your next “free” ride, discount, or device, have you ever wondered how your “free” reward might be funded?

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Depending on the award, the costs are fully or partially offset by transaction processing fees. And whether you pay the fee as an add-on to your bill at your favorite retailer, or the retailer raises its prices slightly to avoid passing the fee on to its customers, there’s no such thing as free lunch.

Borders around the new surcharges

As with any fee or surcharge, it pays to be clear about what you’re being charged and what the surcharge scheme are. As part of the rule change regarding interchange fees, merchants must give consumers at least 30 days’ notice that they will be introducing a fee to recover their processing fees. The surcharge may not be higher than the retailer pays and is capped at a total of 2.4 percent. Merchants must also make it clear to their customers at the time of payment that a cost recovery fee will be charged.

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Money management tips to keep surcharges as low as possible

In the short term, and when retailers decide whether and/or how to pass markups on to their customers, most consumers are unlikely to reduce markups Dependence on credit cards for everyday expenses. The cost of living is at record highs. Credit card use is increasing. Online shopping is safer and more secure than other forms of payment for those who pay with credit cards. The pandemic marked a decline in the use of cash. Ongoing consumer trends surveys report that nearly half of all Canadians are struggling to make ends meet and are unable to meet unforeseen expenses with the savings they have.

While you can rely on credit cards to make ends meet, retire and Evaluate your spending habits during this time when everyone is getting used to the fees. If possible, buy from retailers who do not immediately pass on the price surcharges to their customers. Choose merchants that implement a small flat fee that allows for fee sharing between them and their customers, rather than passing the entire fee on to their customers.

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Not every retailer will charge credit card processing fees. It will depend on what your competition is doing, how loyal you think your customers are, and what industry you are in. Shops selling basic groceries, e.g. Consumers like groceries, alcohol or fuel may be the first to implement them because they know that consumers depend on what they are selling.

Recurring invoices subscriptions, particularly those with locked contracts, could be next. Most consumers are more comfortable allowing their credit card to be charged rather than allowing a business to access their bank account. Consider setting one up separate bank account that you only use for payments. It can be a killer budgeting strategy and also save you money on the new fees. In addition, debit cards, even those with a credit card logo on them, use the Interac system. It’s a much cheaper option for merchants and isn’t part of the new surcharge and interbank fee system.

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It will take some time for frontline processing fees to leak through as computer systems need to be updated to reflect the various fees, staff need to become familiar with the changes and proper 30 day notification needs to be given.

During this transition period, take the time to review your budget. If you’re closer to the abyss than you’d like to admit, contact a non-profit credit counseling center in your area. They can help you outline a budget and show you how to get ahead a month or two. This gives you the peace of mind that you can pay with debit or cash instead of credit to avoid any surcharges.

When reviewing your finances, also check your credit card benefits. Do you use everything they offer? If you only get 1 percent cash back on most of your purchases but have to pay a higher markup, you’re not benefiting from the card’s main reward. Contact your credit card provider and switch to a card with no perks. Look for cards with no annual fee and minimal rewards of any kind. They charge the lowest processing fees. Also check with your favorite retailers. Many have free loyalty programs that might be worth taking advantage of now that credit card programs are more expensive.

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FCAC credit card comparison tool

The bottom line of credit card spend at a premium

Credit, and with it debt, has become a far too normal part of Canadian culture. Instead of collecting as many rewards as possible and running up debt in the name of points, change your spending habits to avoid the new credit card processing fees. Time will tell if more conscious spending is the silver lining to this change in handling fee collection.

Related reading:

4 ways to determine if reward credit cards are right for you

Credit card errors that can ruin your credit score

Will increasing your credit card limit help or hurt your finances?

Scott Hannah is President of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott by E-mailcheck over nomoredebts.org or call 1-888-527-8999.