Charging it adds up
|By Matthew Desrosiers - Editor | April 3, 2014
Don Bamford didn’t know exactly what he was getting into when he started his small business, the Wilberforce Service Centre.
Like most business owners, Bamford signed a merchant services agreement so he could process debit and credit card payments at the gas station and auto shop. However, he didn’t have a full understanding of just how much it was going to cost him to use those cards.
“The cards that have all the rewards points, those ones there are astronomically high rates that they’re [credit card companies and banks] charging us,” he said. “I didn’t know all these extra charges were all on there.”
Bamford knew he would be paying a rate per transaction on credit cards, but was not aware of the rate increases for premium – or rewards – cards.
On one weekend in particular, Bamford calculated that after purchasing his gas and setting his prices, he should have made around $0.04 per litre sold. However, because of how many purchases were made using premium cards – which worked out $0.07 per litre in fees – it actually cost him $0.03 per litre to pump the gas.
“We ended up paying $0.03 per litre to pump the gas for free so they could use their cards,” he said. “It’s not the right way to run a business.”
That month, Bamford paid $935.88 in credit card fees.
“That would have paid my mortgage,” he said.
At the Haliburton Highlands Chamber of Commerce, manager Rosemarie Jung said credit card fees have been an issue right across the country for a number of years.
“It truly is a buyer beware,” she said. “Chambers right across the board have been dealing with it for a long time. It’s been accentuated probably as the different types of cards have been introduced.”
Jung said the rewards cards, cash-back and miles have all created a problem for small businesses over the last eight to 10 years.
“Someone’s paying for those rewards,” she said. “Every [transaction] where a consumer is using one of those higher rate cards, it’s the business that’s paying for it.”
Lauren Hunter, member services at the chamber, said rates on basic cards fluctuate between 1.7 to three per cent of the total purchase. Premium cards can be significantly higher than that.
In comparison to a debit transaction, she said processing fees for a credit card can be as much as 100 times higher. And, if the item is returned, the merchant must pay fees on the refund as well.
“If you’re in support of local businesses and sustainability, just supporting small business period, right there is your argument for sticking with cash or debit,” said Jung.
Once business owners sign a merchant services contract, they’re often locked in for a term and have various rules to follow. For example, some contracts state that merchants cannot refuse a premium card, or that the owner cannot advertise their preference for debit or cash transactions.
Hunter said the Canadian Chamber of Commerce has been trying to reign in the credit card industry by lobbying the federal government for a no-nonsense code of conduct for all companies to follow. In 2010, the government introduced such a code, wherein merchant services providers had to disclose all fees and allow merchants the ability to refuse a card, however adherence to this code was voluntary.
“Until it’s made mandatory, there’s no effective way of ensuring they follow the rules,” Hunter said.
While the Canadian Chamber of Commerce continues to lobby the government to make the code mandatory – a ruling they were hoping to see in the 2014 budget – Jung said at the local level the chamber will be conducting a survey to get more information on just how badly this is affecting Haliburton’s business community.
“It is a substantial and uncontrollable cost to businesses in the county and across the country,” she said. “Something’s got to be done… to get this under control.”
As more consumers turn to credit cards, and the rewards get better and better, Jung said it’s the businesses that are losing.
“The consumer believes they’re winning because they’re seeing all these benefits and they’re shopping in the rewards catalogues. Did you know that you really paid for that in increased costs to the businesses?”
Although the government refuses to force these companies to limit their rates, Jung said there is something that can be done at the local level to mitigate the damage.
“As a community, in terms of our economic viability, if we can get consumers to be aware of this issue, this challenge for small businesses, maybe it will make a difference.”
MATTHEW DESROSIERS is the editor of The Highlander and tries to find room in his house amongst the animals that have taken over his abode in Tory Hill. He thinks The Highlander’s office manager Ashley is pretty sweet, but loves all of the staff as long as they work as hard as he does. Matthew has an impressive, and kind of creepy, obsession with Star Wars. You might catch him volunteering with the HE Fire Department or covering local sports.